JUDGMENT: APPROVED BY THE COURT FOR HANDING DOWN (SUBJECT TO EDITORIAL CORRECTIONS) MR NICHOLAS DAVIDSON QC (Sitting as a Deputy Judge of the Chancery Division): Introduction 1. In July 2010 a property fraud at the centre of which was an impostor vendor, certainly assisted by one or more associates, was earned out. Virtually all the relevant events took place in 2010, and references in this judgment to dates without a year being stated are to 2010. 2. The claimant, Mr Shaheed Ikbal, for whom the defendant solicitors Sterling Law (“Sterling”) acted, contracted (as he thought) to buy a property, 121 Brooke Road, London N16 7RJ (“the Property”). Although at one stage there was a possibility that he would obtain mortgage finance, in the event he bought without it, although he borrowed from family sources. It is not a mortgage fraud case. 3. Sterling (for whom Mr Spike Charlwood appeared), would suggest that from the purchaser’s solicitor’s side the transaction proceede d in a conventional way until, following the supposed completion, a transfer in form TR1 failed to appear from the vendor’s solicitors. The claimant (for whom Mr Peter Dodge appeared) disagrees, submitting among other things that the defendant should have become suspicious of the bona fides of the vendor, and warned their client accordingly, but it is undoubted that the major departure from a conventional course was the non-appearance of the TR1 following the supposed “completion” of the transaction. 4. A firm of solicitors, Fernando & Co. (“Fernando”) signed the contract for the supposed vendor, who was said to be their client. In circumstances described below, the full purchase price, £350,000, was remitted to Fernando (as would be the normal course if the Law Society Code for Completion by Post were being used). The money disappeared. Fernando did not tender even a forged transfer of the property. Fernando had not been acting for the actual owner(s) of the Property. Six and a half weeks later the Law Society intervened in their practice. No money has been forthcoming from Fernando, any insurers, or indeed anyone. Mr Ikbal claims against his own solicitors, Sterling. He makes claims in two categories, breach of trust and breach of (contractual and parallel extra-contractual) duty of care. There is some, but by no means total, overlap between the categories of claim. He claims reconstitution of the trust fund (money paid to the defendant for the purposes of the purchase) by repayment of £315,000, or equitable compensation, and damages. 5. Some of the detail of the saga is still shrouded in mystery. Published Warnings 6. It is now more than 20 years since the first “Green Card” warning on mortgage fraud was issued. The Practice Note issued dealing with practice as of 15 April 2009 said that it should be read by all solicitors who did conveyancing work involving a mortgage, which was work that the defendant’s Mr Parmar did. At the outset it observed: 7. On 11 October 2010, after the main events in this case, the Law Society issued a practice note about “Property and registration fraud”, which said that it should be read by all solicitors who carry out work involving Land Registry applications. Although it was drawn to my attention, it plays no part in this case because it had not been published when the defendant was doing the relevant work. It is, however, worth recording that the case does in fact arise from a property fraud of a type about which the warning of 11 October 2010 was in due course issued. The case is certainly one of “vulnerable registered owners” (note 2.2.2) and probably a vulnerable property (note 2.3). This is a practical example of a known type of fraud, a purported sale of a property by someone other than the true owner. On this occasion, it is clear that those involved in the fraud included someone in the solicitors who claimed to act for the vendor. The Property 8. The Property was a house in Hackney, East London. 9. Mr Philip Phillips, who was a chartered surveyor, was registered as proprietor of the freehold interest in that property, with title absolute, under Title NGL338828, on 21 April 1961. On the search obtained on 28 June 2010 his address was shown as 74-76 Stamford Hill, N.16, but of course the document showed that registration had been effected on 21 April 1961. 10. Mr Phillips had died on 22 March 2000. His interest in the property was left to his widow, Rhoda. No change was made on the Land Register before her death, on 27 June 2001. Nor indeed had his Executors, Mr Peter Phillips and Ms Stacey Phillips, obtained Probate in that time. Probate of Mr Phillips’ Estate was granted on 15 April 2002, and then Probate of Mrs Phillips’ Estate was granted to Mr Peter Phillips, Ms Stacey Phillips and Ms Janice Phillips (“the Phillips children”) on 22 April 2002: evidently they, or trusts with which they were connected, were, under Mrs Rhoda Phillips’ Will, to benefit from ownership of the Property. As they put it, with notable understatement, in evidence or argument in possession proceedings mentioned below (0EC02774), “for one reason or another” they did not take steps to register themselves as proprietors of the Property immediately. They did not do so until after the events giving rise to this claim. There is no indication as to why nothing happened about title during the decade between Mr Phillips’ death and the perpetration of the fraud, and very little specific indication as to what, if anything, was happening either at or about the Property during that time, though passing reference to it was made in paragraph 5 of the Particulars of Claim in the possession proceedings mentioned later. 11. Photographs show the Property to be a terraced house. The appearance from the photographs suggests some period of occupation and some neglect. In June 2010 Mr Ikbal obtained a report from GCA Consulting following structural inspection of the property. The inspection had taken place on 2 June. It was recorded that the property was in a poor state of repair and until recently had been inhabited by squatters. It was not weather-tight. It would have been natural for a buyer to want to get work under way as quickly as possible. It would also have been clear that the vendor was not resident there, and the claimant would have known that from his own visits to the Property before purchase. The claimant 12. Mr Ikbal is 31, and lives in Leicester, as he has done for most of his life. He has close connections with Loughborough, 10 miles north of Leicester, which is where his family established a stationery business in 1987, still operating now, and where he went to school and college and established, with his late brother, another store for the family business. 13. He started at Sheffield Hallam University, but his family had the great misfortune of his brother being killed in a car accident, so the claimant returned to Loughborough and worked in the Loughborough business. When aged about 24 he decided to try his hand in property investment, buying in the space of perhaps 2 years a terraced house in Loughborough in partnership with his mother, a shop with accommodation over in Uttoxeter, a one-bedroom flat in Loughborough, and then a shop with flats in Hackney, in partnership with a cousin, Shameer Latif. He felt that, having been concerned with renovation work at his sister’s property in Leicester, and in redeveloping the Uttoxeter property, he had gained what he described as a vast amount of knowledge in building work and site management. The defendant, and Mr Parmar 14. Mr Hashok Parmar (who also uses the spelling Parmer) is a solicitor who is now a sole practitioner, practising in Loughborough as Sterling Law Solicitors. At the material times the firm-name Sterling Law was used by a partnership of which Mr Parmar was the senior partner. The person mainly involved in this matter was Mr Parmar; Mrs Kalpana Patel, the Practice Manager, had some involvement. Mrs Patel is no longer with the practice, but Mr Parmar’s evidence was that she could readily have been and be located to be called as a witness. She was not called. 15. Mr Parmar qualified as a solicitor in about 1993, while working in local government. He moved to private practice in 1995, and for the next 9 years worked in family law. In 2004 he transferred to the commercial department of the firm where he was working, and for about four years specialised in “commercial and predominantly residential conveyancing”. In 2008 he joined a Loughborough practice called Parmars Solicitors, which he left in 2009, setting up Sterling in December 2009. He was undertaking some conveyancing work during 2010 although the property market was slack. He agreed that at the time of his matter there was a generally perceived risk of fraud in conveyancing transactions, but he was not familiar with the contents of the Law Society Practice Note on Mortgage Fraud (though he should have been). He personally has come to concentrate on other work and is no longer undertaking conveyancing. Fernando & Co. 16. There was a firm of solicitors practising under this name. The firm’s address was in Tooting Bec, South London, at 15 Trinity Road, London SW17. The partners listed on the letter head were Rajesh Bhandari and Lingam Tangavellu, though there is reference to the lessee of the firm’s premises having been one H Fernando. This matter was conducted under the reference RT/723/Phillips. On 15 July they sent a handwritten fax which said that it came from Mr Yogesh. 17. The Solicitors Regulation Authority (“SRA”) intervened in Fernando’s practice under Schedule 1 to the Solicitors Act 1974. It is agreed that this happened on 10 September 2010. The precise basis was not stated at trial, but if the Law Society had known what had happened in this case they would have been entitled to intervene on the basis of suspicion (to say the least) of dishonesty (paragraph 1(1)(a) of the Schedule). Although I have not been provided with details of the Powers exercised under Part II of that Schedule, it is common ground that Messrs. Devonshires were the solicitors appointed as the Authority’s agents, and took possession of the available files. 18. Devonshires have found no Fernando file for this transaction. Although it is to be hoped that someone has attempted to trace the flow of funds, no information has been provided in this case from records of Fernando (or their bank) as to the movement of funds into and out of client account. (There is evidence from the defendant of funds being sent from the defendant to Fernando’s client account.) 19. The trial papers include photographs of notices at the office. One gave the contact details for Devonshires. Another showed that the keys for the premises were, by the time of the undated photograph, held by Devonshires. A third notice, dated 2 November, shows that by that date the landlords had effected peaceable re-entry of the premises. 20. It appears to me right to inter that from about 10 September 2010 Femando’s office would have ceased to function: everything points to the intervention being on the basis of dishonesty, and on such interventions it is naturally the aim of the intervention agents to take control immediately. It is unlikely, and I therefore do not believe, that calls to Fernando’s telephone number after 10 September would have been answered at all, either by human or by apparatus. On 16 November Sterling wrote to Fernando that “unfortunately you are not able to take incoming phone calls at present”: clearly the telephone was then out of service; it is probable that the occasion for the telephone ceasing to be in service was either the intervention or the repossession by the landlords, though there is no actual evidence as to which. 21. There has been no evidence from Fernando: there are just the documents to and from them which are to be found on Sterling’s file. There is, however, no suggestion that this is a case (such as some cited below) in which the name of a bona fide firm of solicitors has been hi-jacked by an impostor, and no suggestion that the bank account to which funds were sent by the defendant was other than a Fernando client account. There was a genuine firm of that name operating from the address in question. It appears to be a case of a genuine firm of solicitors in which one or more dishonest people were working. 22. I deal with the case on the footing that on the occasion when completion was due “completion” was handled by an individual at Fernando who was acting dishonestly with the intention that the money provided on behalf of Mr Ikbal should be misappropriated. Apart from anything else, the non-supply of a TR1 is not consistent with the honest conduct of completion under the Postal Code to which reference will be made. (It is much more probable that the non-supply reflects that Fernando did not send one than that they did send one and it went missing in the post or the document exchange.) 23. It is clear also that no partner of the firm has complied with that individual’s obligation under the Solicitors Accounts Rules to restore to client account the money wrongfully withdrawn; neither have the insurers who should have been in place made good the deficiency; Mr Charlwood said that I should not speculate why, but it is not speculation to be aware of the arrangements, set by rules made under statutory powers, for compulsory insurance: if insurance was in place then it would be difficult to see why, having regard to the Minimum Terms applicable to such insurance, the insurers would not be obliged to pay unless they successfully invoked against each partner in the firm the well-known dishonesty exclusion which is invariably to be found in policies which are subject to the Minimum Terms. The Code for Completion by Post 24. As the authorities (notably Edward Wong Finance Co Ltd v. Johnson, Stokes & Master [1984] A.C. 1296 and Patel v Daybells [2001] EWCA Civ 1229 [2002] P.N.L.R. no. 6), show, for decades the occurrence of completion by the attendance of the buyer’s solicitor at the office of the seller’s solicitor has become increasingly rare. An intermediate possibility is for the buyer’s solicitor to engage a local agent to attend at the office of the seller’s solicitor, but the very common practice is to complete in accordance with the Law Society’s Code for Completion by Post as from time to time in force. (“the Postal Code”) In July 2010 the version in force was that originally issued in 1984, as revised in 1998. As Note 2 explained, its object is to provide solicitors with a convenient means for completion on an agency basis when a representative of the buyer’s solicitor is not attending at the office of the seller’s solicitor (though contracts such as the Standard Conditions of Sale, 4th edition, which applied to this case, specify the seller’s solicitor’s office as the normal place for completion). 25. Provisions relevant for present purposes are the following. In this case a fundamental document required under undertaking (ii)(b) was a form TR1, duly executed, from the vendor. The witnesses 26. The case has been complicated by the fact that the witness evidence of both the claimant and the solicitor involved at the defendant turned out to be, in respects to which I attach much importance, unsatisfactory. Whereas in Santander UK PLC v R.A. Legal Solicitors [2013] EWHC 1380 (QB) there was an allegation, which it was not necessary to determine, that the purchaser as well as the “seller’s” solicitor was dishonest, but all the witnesses were honest and trying to help the Court, in this case there was no such allegation against Mr Ikbal, but the witness evidence had unsatisfactory aspects. I comment on the witnesses before dealing with specific issues of fact. Mr Ikbal 27. In evaluating his evidence my general impression was at first a favourable one of a straightforward witness who was concentrating well and dealing sensibly with questions. Later he seemed less good at giving direct answers to questions. And in due course the impression of his evidence being straightforward received a sharp jolt. 28. This was not from the cross-examination on his search for finance for the purchase, although that left me conscious that his detailing in evidence of events might not be precise, and that in seeking finance he might not have been careful to see that what was said in his application was strictly truthful (I do not suggest that he was consciously dishonest). 29. A part of the history is that as soon as he was told that his purchase had completed the claimant set about works of improvement to the property, for which he engaged others to work for him. The trial documents contain a substantial number of documents which appear to be regular receipts for payments to a Mr Wells for doing such work. Part way through the series described as receipts from Mr Wells the format changed. Probing from Mr Charlwood established that receipts were not, as they appeared to be, contemporaneous documents, but were in fact manufactured for the purposes of this litigation, rather than regular receipts provided on the occasion of the making of each payment. The claimant said that the procedure was that Mr Wells (who was based in Loughborough) would go to the claimant’s shop in Loughborough, and that the claimant would make a note in his diary and that “they” (Mr Wells operated as Wells Builders) would “sign for what they have [been] paid”. The receipts stopped in April 2012 and that was when, said Mr Ikbal, he went to see Wells Builders to get them to compile receipts. The receipts were not contemporaneous to the dates on them: they were compiled from the “list” Mr Ikbal made each time they came into the shop. The list (or diary) had not been disclosed. So this was evidence of at least one document being kept contemporaneously, from which the claimant and Mr Wells had created at a later date the set of receipts which could be and were produced as apparently contemporaneous documents to the defendant to vouch the payments allegedly made. The document said to contain the record had not been disclosed (I use the word in the technical sense in which the word is used in the Civil Procedure Rules). If such a diary and/or list had existed, it should have been disclosed and would have been inspected. This evidence being given in the morning, and Leicester being on a major railway line and at no great distance from London, I asked if the diary could be brought to Court by the end of that afternoon. Mr Dodge said on instructions that it could not. The words “that afternoon” were not casual: if people will manufacture documents to disclose and produce them as evidence, there is the risk that more will be manufactured if they are needed to bolster the case. Although I was distinctly surprised to be told that no one could be found who would be able to get the document(s) to London that day, I left the matter there. However, documents, said to include (but not be limited to) contemporaneous records of the payments, were brought to Court the following day, and Mr Dodge wanted to introduce them. Mr Charlwood, who had not had an adequate opportunity to consider them in any detail, objected to Mr Dodge’s desire to add them to the evidence. I had an entirely open mind as to what the outcome would be on the evidence about payments if I refused to allow Mr Dodge to add them, and ruled against their admission for reasons given at the time. 30. This episode led me to be very reserved in my approach to the claimant’s credibility. On his own case he was in breach of his obvious obligation to disclose a document evidencing payments which were in issue. Instead of doing that, and perhaps obtaining a statement from Mr Wells, the two of them manufactured a set of documents which gave a false appearance as to when they were created. Such behaviour calls into question the integrity of a claimant’s approach to the litigation. It is of course the case that Mr Wells has had no opportunity to say anything about this; he may have believed that what he was doing was appropriate and helpful and have had no idea that the resulting receipts might be provided to anyone in a way capable of misleading. Mr Parmar 31. Mr Parmar’s witness statement said, unsurprisingly, that because of the lapse of time he could not, when making the statement in February 2013, recall all the relevant details, but that there were “a number of important facts which I do recall very clearly”. I have considered the likely impact of matters on his mind at the time, and the extent to which I believe him to have a reliable recollection; I also considered the manner in which he gave his evidence, what he said, and the documentary material. He could be somewhat voluble in his answers and I was careful to satisfy myself that I understood correctly the effect of his answers. 32. In the first stage of his cross-examination he came across to me quite naturally, as an ordinarily straightforward witness having to deal with events the best part of three years earlier which would not, on his case, have made a particular impact until he was instructed that possession proceedings were being taken against his buyer client. (One thing that stood out about this case was the aggressive time pressure coming from the vendor’s solicitors; I accept that that did stand out, and Mr Parmar said that time pressure came from Mr Ikbal as well, which it probably did, but I do not see that the case would otherwise have stood out: he told me that his experience included dealing with a considerable number of conveyancing solicitors whose standards were abysmal, and if that was his experience Fernando would not have stood out as worse than others.) In the second stage of his cross-examination there was a marked change, and the impression he gave was of having become deflated, as if he himself had lost confidence in what he was saying. Although the way he gave his evidence impacted to an extent on my confidence level in what he was saying, it did not affect my view of his honesty; it did not give me confidence in the reliability of what he said; indeed, I felt that he became all at sea. 33. My impression of straightforwardness was confirmed when he was asked about the checks recommended to be made by solicitors when encountering solicitors not known to them in a conveyancing transaction, and he freely owned that he did not make such checks on Fernando. Later, when challenged by Mr Dodge that the defendant had done a shabby job (a question which was not directed to any particular time) he said simply that he would be stupid if he didn’t say that it may be a shabby job. 34. Reliability is a different thing. 35. Before verifying orally his witness statement (which of course was verified by the Statement of Truth dated 15 February 2013), Mr Parmar made some careful alterations to it. Important alterations were as follows: Paragraph 38 as written read: Mr Parmar said in the witness box that this was not correct. He was abroad (he later explained, on holiday) on 26 July 2010 and the transfer was made by Sterling’s Practice Manager, Mrs Patel. By itself this change might not seem particularly significant, but the next change also concerned Mrs Patel. Paragraph 42 as written read: Mr Parmar said in the witness box that this was not correct. He said that he made one or two such calls to Fernando and that Mrs Patel also made one or two. 36. Of course such changes before verifying the witness box can be prayed in aid by either side. Among other things, it can rightly be said that the witness has been careful to re-read the witness statement before coming to give evidence, and is being scrupulous to see that mistakes are being corrected, so the Court can see that the witness in the box is doing his very best to give accurate evidence. Equally rightly, it can be said that the witness was not careful either in preparing the witness statement or in reading it before signing the statement of truth. (The second of these episodes was concerned a potentially important point in the case; the first, less so.) 37. Mr Parmar did not seek to alter paragraph 41 before verifying the witness statement in the witness box. This read: In cross-examination he said that he wished to withdraw the second of these three sentences. I read the paragraph back to him without the second sentence and he confirmed to me that that was how he wished the paragraph to stand. 38. There was an example of inconsistency over time, from the documents. One of the points said by the claimant to be “unusual or suspicious” (a factor in the duty-of-care claim) was that the seller’s address was given by Fernando as that of the Property, which was different from that of the seller as shown in the register of title. Mr Parmar wrote about this on at least two different occasions: In cross-examination he said that the address in question was 74-76 Stamford Hill. 39. Another example is that when being cross-examined Mr Parmar said that he did notice that in the batch of documents alleged to give rise to suspicion “Brooke” was spelt “Brook” and said “have you missed out e?” – whereas his witness statement said that he did not notice that mistake. 40. Whatever allowance may be claimed for the effect of lapse of time and any stress of giving evidence, either in preparing a witness statement or in the witness box, I do not think that evidence of detail, unsupported by documents, from this witness has much value. The statement that there were a number of facts which were remembered very did not convince me. 41. In my judgment Mr Parmar’s evidence in this case, where unsupported by documents, is unreliable. 42. The question of honesty is directly in issue not only for general credibility purposes but also because the defendant asks for relief under s.61 of the Trustee Act 1925 (“section 61”), it being for a person seeking such relief to prove his honesty for the purposes of that section. When I read the defendant’s letter of 2 November 2011 I had, for reasons I mention later, a real doubt arise as to its honesty and was, from the first, alive to the need to be evaluating Mr Parmar’s honesty; paying heed to the way in which he gave his oral evidence, I concluded that his oral evidence was given honestly. Possibly missing attendance notes 43. Mr Parmar’s evidence was that he believed that at the time this transaction was taking place the defendant had a computer problem and that as a result his firm did lose a batch of attendance notes; this might explain the absence of documents which might have supported his account of events. The evidence about this problem and the risk of the loss of data relevant to this case was very vague and left me quite unpersuaded that I should suppose it likely that there were attendance notes besides the documents that have actually been produced. If one considers the whole period from 1 July until the claimant changed solicitors after 16 November there is a striking absence of attendance notes where one would expect, if the defendant’s factual case were right, that there would be attendance notes, covering a period when letters to the claimant had survived any computer malfunction. While Mr Parmar believes he was good at making attendance notes, and was certainly better than some conveyancers about this, it seems to me much more likely that the absence of attendance notes is caused either by there being no event to have recorded, or by failure to make a note of that which should realistically have been recorded, than by a note being made which was subsequently lost as a result of a computer problem, and my findings of fact reflect a view that the absence of attendance notes is caused by the absence of there being anything to record. The course of events to the day of “completion” 44. The evidence about Mr Ikbal becoming interested in buying, and agreeing to buy the property, was explored in cross-examination without leading me to any conclusion that it was materially wrong or that I should draw any conclusion from it which affects the outcome of the case, although it did show that the claimant’s statement contained some errors of detail. The claimant and his cousin Shameer were introduced to the property by someone (Mr Ullah) who he understood to work for a well-known estate agent, and they met at the property someone who was probably a party to the fraud, as he was introduced as the seller’s nephew. The claimant and Shameer were minded to buy the property as a partnership venture. A professional survey was undertaken. Some discussion took place which resulted in the price being reduced to £350,000, a significant reduction from the asking price and below what the claimant thought might have to be paid. The intending purchasers instructed an outer London law practice, Central Law Practice. The retainer of the defendant 45. In the event Shameer withdrew from the project, apparently having difficulty in raising finance, and the claimant decided to press on alone. On 1 July the claimant authorised the defendant to act for him and to obtain all documents from Central Law Practice. 46. The retainer would, unless the contrary were agreed, carry with it authority for the defendant to conduct the matter in accordance with approved conveyancing practice. 47. There was a substantial engagement letter which the claimant signed. It was captioned “re: 121 Brook Road …”, so the road-name of the property was mis-spelt. 48. The list of Agreed Next Steps which the letter set out included: It was not argued that the last sentence quoted contained a contractual obligation which was breached. 49. It seems sensible and clear that, any question of deposit apart, monies provided by the buyer to the defendant to pay the purchase price were not to change hands except on “completion”, being the point at which the buyer would become owner of the property in question by delivery of all documents necessary to transfer ownership. The buyer was not being asked to authorise any of his funds moving out of the control of the defendant except in exchange for ownership of the property. The work under the retainer 50. A draft contract had been prepared during the Central Law Practice retainer. This was sent to the defendant, together with a Property Information Form, a Fittings and Contents Form, and an Additional Property Information Form. The claimant says that the defendant should have considered the contents of these documents unusual or suspicious, an allegation considered later. The defendant did not react to them on that basis. His evidence was that he reacted in some respects, but did not at the time have his suspicions aroused. 51. The real activity on the file began on 13 or 14 July. Fernando wrote on 14 July referring to a telephone conversation on 13 July “with regards to Exchange of Contracts and completion of the matter”. They said they had (aggressive) instructions that a deposit of £10,000 must be paid the next day, with completion on 20 July, on the basis that: 52. On 15 July another letter “with regards to Exchange of Contracts and completion of this matter” said that the details had been changed to £35,000 being paid on 15 July, with completion on 23 July. As before, failure to complete on the completion day was on pain that “your client will loose [sic] the deposit 10% £35000 and the contract to be rescinded.” 53. That day Mr Parmar was bargaining for completion to be on “Friday 24 July 2010” (24 July actually being a Saturday) and for the normal Notice to Complete arrangements, without which Mr Parmar’s instructions were to return the Contract of Sale. 54. The correspondence shows that there was a telephone conversation between solicitors that morning. Then Fernando moved slightly to allowing for a Notice to Complete expiring on 28 July. Sterling recorded that Mr Ikbal felt he was being unduly pressurised, but would be willing to exchange that day on the basis that the deposit would be sent by bank transfer the following day with completion to be on 30 July; failing acceptance of those terms, it was said, Mr Ikbal would withdraw from the transaction. 55. Exchange did not take place that day, but Fernando did supply their client account details. 56. On Friday 16 July Fernando proposed exchange that day, with the deposits being paid by 1pm that day, and completion to be on 23 July; in case of failure by the buyer to complete Notice to Complete could be served by the seller with completion then required on or before 28 July. 57. Exchange of contracts took place by telephone that day and is recorded in both a letter and an attendance note. The deposit of £35,000 was being held in Sterling’s client account and was sent to Fernando. Mr Parmar’s typed note was that: 58. On Monday 20 July Sterling sent Fernando the draft TR1 Transfer for approval and Requisitions on title. The letter continued: 59. On the same day they sent Mr Ikbal a bill and completion statement. This recorded that they had received the funds for the deposit of £35,000 and for the completion payment of £315,000. Their own charge for their services was £450. 60. On 22 July Fernando sent their signed copy of the contract, together with the Requisitions on title form. Section 4 dealt with “Completion”. This section asks a number of questions, in some cases providing boxes for answers. 61. The first question was “Will completion take place at your office?”, and was answered with a tick in the Yes box. 62. The next relevant words are: 63. After that comes 4.2: 64. Opposite the words “If we wish to complete through the post, please confirm that:” was written in “N/A”. 65. Opposite each of requested confirmations (a) and (b) there was a tick box followed by the pre-printed word “Confirmed”. Each tick box was left blank. 66. I agree with Mr Dodge that the only realistic interpretation of this section is that the person who had entered N/A was indicating that completion would not be through the post. 67. On Friday 23 July (taking, as Mr Dodge put it, their [documentary] bow) Fernando wrote: 68. I accept that on 26 July Mrs Patel told the claimant that the purchase had completed. That would have been her understanding derived from the necessary, if untruthful, telephone report from Fernando. 69. In none of the material mentioned is there express reference to the use of the Postal Code. Apart from the absence of the writing to be expected if the Code were used, the “completion” was conducted as if under the Code. An important issue was whether the use of the Code was expressly agreed. Was the use of the Code for Completion by Post expressly agreed? 70. As indicated, no written agreement to use the Code was made. There is no written record of an express oral agreement to use it. 71. If the Code was to be used, it was plainly desirable that agreement to use the Code should be either made in writing, or, having been made orally, recorded in writing in an exchange between the solicitors. The Code allowed for the agreement to use it being made orally (the less preferable method of agreement). While one would expect a competent solicitor to make at least some documentary record (e.g. mark on a check list) of the fact of oral agreement, it was not actually mandatory to do so. One may contrast the final paragraph of the accompanying notes, which specified that any variation in the code must be agreed in writing before the completion date. 72. It was asserted in pre-trial correspondence and at trial that the use of the Code was agreed by telephone. As indicated, I entirely accept that it was open to the transaction solicitors to agree in this way. But did they? 73. As a matter of context, this was a transaction for which postal completion would have been the obviously convenient method. The solicitors’ offices were a substantial way apart in both distance and time, so physical attendance by Sterling would be a wasteful use of resources unless actually necessary, and a cost to someone. There is also the more minor consideration that electronic transfer of funds would be more convenient than obtaining physical delivery of a banker’s draft. 74. However, as Mr Dodge pointed out, the answers given in the Requisitions were unambiguously looking to completion by personal attendance: the opening words of 4.2 were answered “N/A”, and then undertaking 4.2(a), which would have been required for use of the Code, was not confirmed to be given. Mr Dodge relies on the absence of record of an express agreement to use Postal Completion as strongly indicating that no such agreement was made. 75. Mr Parmar’s say-so that he had the required conversation was a point at which his evidence was inconsistent as to the circumstance leading to the telephone call which he (consistently) said occurred. In his witness statement at paragraph 37 he set out what he said was his understanding of the answer to 4.2; in cross-examination he said that in fact 4.2 did not make any sense to him. Either way, he said that he called Fernando. 76. To take the events in order: the deposit was paid by inter-bank transfer, for which Fernando had supplied Sterling with their client account details, so the defendant already had the details which their bank would need. 77. Mr Parmar evidently assumed that postal completion would be what was used: when sending the Requisitions on 20 July he referred to the (balance of the) purchase monies being received into Fernando’s client account on 23 July, which was the contractual completion date: Mr Dodge is right to say that the basis on which the money would be sent to client account is not clear, if by that he means not clear from the face of the letter; the letter is, however, consistent with an assumption that that is what would be done, as is the completion statement between Sterling and the claimant which included a Telegraphic Transfer fee. 78. The assumption would of course be consistent with there having been an unrecorded express agreement to use the Postal Code by then. But there is no suggestion that there had been a conversation about using the Postal Code before then. 79. The Requisitions with their surprising answer to 4.2 were faxed back on 22 July. 80. By this time a matter of context is that the due date for completion was the following day. Nothing had happened which would suggest expectation of, or readiness for, completion in person (there is nothing to indicate any notion that attendance by someone from Sterling or an agent other than Fernando would be occurring, and no thought of getting a banker’s draft; and it was clear from Mr Parmar’s evidence that completion of a transaction otherwise than post would be abnormal for him and that he was unaware of such a suggestion in this case). Nor did anything suggesting such an expectation occur after receipt by the defendant of the answers to the Requisitions. 81. The exchange of letters on 23 July was clearly written on both sides on the assumption of postal completion. There is no express record of an agreement having been expressly made in the intervening time, or of any undertaking being expressly given. 82. Mr Parmar’s witness statement evidence is, firstly, that he read the answer to Requisition 4.2, reading “N/A” as “not applicable” and interpreting that as meaning that an answer was not required to Requisition 4.2(b) as there were no mortgages or charges secured against the Property. That is not a sensible reading of the document as such. My assessment of him is that he would have read the answers to the Requisitions, but not necessarily with great care. It seems to me likely that he had a strong assumption that postal completion would be used and, to the extent that he really applied his mind to the document, he interpreted the answer in the context of that strong assumption, looking for a meaning which fitted his preconception. My judgment is that he did see that there were said to be no mortgages or charges (as indicated in answer 6.1, to which there is cross-reference) and left the answer to 4.2 on that basis. 83. His evidence continues that he spoke with Mr Bhandari and agreed the use of the Postal Code. He added that he called him because he personally would be going on holiday on Monday 26 July, explaining in cross-examination that the point about that was that necessarily he could not attend a personal completion on that date. 84. Apart from the inconsistency of what was said about Mr Parmar’s reaction to the Requisition answers, this is all plausible. That this telephone agreement was made and that no note of it appears anywhere is not implausible, if one allows for the obvious possibility that a conveyancer was being slapdash, or, possibly, distracted at the moment he would otherwise have made the note recording the agreement and undertaking. But if one is allowing for the possibility of slapdash work, then I would allow also for the possibility of being slapdash not only in recording but in troubling to do things in the right way in the first place. It is perfectly plausible that someone who was less than rigorous in the technique of the work would simply assume that postal completion was going to be used and not go through what he might (unwisely) regard as the unnecessary formality of achieving an express agreement. The witness statement contains no suggestion that Mr Parmar thought that Fernando were suggesting personal completion, and no puzzlement about the answer to the Requisitions. An interpretation of the reference to the holiday is that if a conversation took place it was not because Mr Parmar wanted to make the express agreement to use the Code but because he wanted to mention that he would himself be away that day so that the seller’s solicitor would know to whom at Sterling to report completion. 85. I find that the use of the Postal Code was not expressly agreed. This is not a case of meticulous conveyancing. It is a case of apparently routine work being done at a low price in a firm whose handling of this matter was on any view at times not meticulous (the post-completion history shows that). I do not think that it mattered to Mr Parmar whether there was express agreement to use the Code or not: its use was routine. I do however consider that the defendant assumed that it was implicit that the Postal Code would be used and likewise assumed that both solicitors were working on the basis that it was treated as being used. Post-“completion”: Fernando 86. There is no actual evidence of the date of misappropriation. What is clear is that this was not an opportunistic theft by someone at Fernando of some money observed to be held in client account pending payment to the client. This was a pre-planned fraud with an insider at Fernando involved. The object of getting the money in to Fernando’s client account was to get it out into the hands of the fraudsters. As a matter of logic, I would expect fraudsters to get the money out of client account and into their pockets just as fast as possible, not least to defeat any attempt to get the money back when the fraud was discovered. That view is fortified by the time pressure displayed in the correspondence from Fernando in the run up to exchange of “contracts” and “completion”. It has not been dispelled by noting the timing in a case, considered later, in which information was available about movements from the dishonest solicitors’ client account, Santander UK plc v. R.A. Legal Solicitors [2013] EWHC 1380 (QB) at paragraph 27. (I mentioned to counsel that I have seen in other cases documents showing the movement of funds fraudulently obtained into solicitors’ client accounts: I have ignored what I have seen on such occasions.) Post-“completion”: the defendant 87. In the ordinary way following a postal completion, one of the things that should have happened was that Sterling should have received a duly executed TR1. The vendor’s solicitors must have it to complete and are obliged to despatch it on the day of completion, and in the ordinary course of post/document exchange it should be received by the buyer’s solicitors on the next, or very soon after the next, business day. 88. Completion was supposed to have occurred on Monday 26 July, so the executed TR1 should have arrived on 27 or 28 July. By Friday 30 July it was already significantly overdue. 89. On 30 July (when Mr Parmar was on holiday) Sterling wrote to Mr Ikbal requiring payment of the balance outstanding of £11,266.38 and explaining the importance of payment. One of the matters mentioned was: 90. The absence of the TR1, also a necessity for registration, was not mentioned. While it might not be mentioned in a letter to the client at that stage, this would certainly be a time to chase the matter up, being the fourth business day after “completion”. There is no record of any enquiry about the non-appearance of the TR1 until a letter in November, mentioned below. 91. On 27 August Sterling wrote what is in form another letter to Mr Ikbal, seeking payment of £486. It is not in substance a letter: it is Bill of Costs prefaced “Dear Mr Ikbal” and ending “Yours faithfully.” It made no reference to any matter other than the request for payment of that sum, but, given that this was just a Bill of Costs I see no significance in the absence of such reference. 92. On 15 September Sterling wrote what was not a routine account chase. It began “Dear Shaheed”, provided a further invoice, and was sent by Mr Parmar in person, requesting funds “to conclude this matter”. This did not mention any question of a problem over receipt of necessary documents. If the defendant was aware that the TR1 had not been received, this was an obvious occasion to report it and such a report should have been made. 93. A further letter in the “Dear Shaheed” / “Yours sincerely, Hashok Parmar” style was written on 14 October. So was one on 11 November, and on that day there is an attendance note of a call to Mr Ikbal’s mobile telephone voicemail. 94. There is no hint that there might be a problem, or even a request to call Mr Parmar so that a matter could be mentioned then. 95. The Phillips children, meanwhile, had discovered that someone had started work at their property, had taken steps to register their title, and to start possession proceedings. 96. Their application to register was made on 27 September. 97. Possession proceedings were started against Persons Unknown, by a claim form issued on 19 October. Mr Ikbal became aware of the proceedings and instructed Sterling in that matter. Mr Parmar then wrote to the Phillips children’s solicitors (Manuel Swaden) on 16 November. (The letter was slightly inaccurate in saying that completion took place on 23 July: the date of the supposed completion was 26 July. Nothing turns on that inaccuracy.) The letter did contain the first reference in the documents to the transfer since 26 July: 98. The same day Sterling wrote to Fernando: 99. The letter does not suggest that Sterling had previously informed Fernando that the transfer had not been received. It does not suggest that they had tried to contact Fernando about that previously. It does not suggest that there had been previous attempts at telephone calls, or that anyone had encountered difficulty with telephone calls to Fernando before. It contains no protest about Fernando’s behaviour. One might expect a (strong) protest if there had been previous chasing; on a first notification of non-arrival of a document sent by post or document exchange there would not be a basis for a protest. 100. The letter was first sent by fax, but a note records that “fax didn’t work. called tel no. also & it didn’t work either?? sent via post only.” The attempt at contact had run up against the fact of the intervention, which had taken place two months earlier. 101. It is the defendant’s case, and Mr Parmar’s evidence, that there had been about two calls to Fernando from Mr Parmar, and about two from Mrs Patel. It was also the defendant’s case that the claimant was told that “nothing had been received from Fernando & Co.” and told the defendant not to take further action at that time: this was the subject of paragraph 41 of Mr Parmar’s witness statement which I have mentioned above. 102. The material leads me to the following conclusions. 103. First, even were I to accept Mr Parmar’s evidence about this, which I do not, this was a wholly inadequate way of dealing with matters post-completion. Not later than 30 July the non-appearance of the TR1 should have been raised; the fact of any communication should have been recorded; and rapidly after 30 July the matter should have been chased vigorously by telephone and in writing. If a suspicion arose that Fernando had not been in possession of a duly executed TR1 at the time of the supposed completion a solicitor would have had to report to the SRA and to the client. A failure to despatch it immediately would be a significant breach of the Postal Code, only remedied satisfactorily by the arrival of the document. My view of this is much stronger than the limited admission by the defendant that it should have chased the TR1 more forcefully. 104. Second is the factual conclusion. I do not accept that any attempt was made to enquire about the whereabouts of the TR1, or otherwise to communicate with Fernando about it, before 16 November. All the indications from the absence of documents before that date, the absence of any note of reporting the problem to the claimant, and from the documents on that date, suggest that no attempt was made, and in particular that nothing had been done in the period of more than two months since the intervention. (Nothing has suggested an unfulfilled telephone call to Fernando in the period of more than 9 weeks between the intervention and 16 November.) 105. I refer also to a matter which gave me concern. I have referred earlier to the exchange of correspondence between Messrs. Memery Crystal, for the claimant, and Sterling when the SRA was looking to Memery Crystal for information. Another matter raised by the SRA with Memery Crystal, and therefore by Memery Crystal with Sterling, was what, if any, enquiry had been made of Fernando as to the whereabouts of the TR1. Sterling’s reply to this was: 106. This astonishing statement was not the subject of scrutiny in cross-examination of Mr Parmar. Mr Parmar accepted, when I asked him, that if the statement set out in the letter had been made to a conveyancing solicitor when the Postal Code had been used, alarm bells would have been ringing deafeningly. I recognise it as possible that this was a statement made by Sterling in the letter in good faith on the basis of that account of a telephone call having been given by Mrs Patel, and that she might not have realised the significance of what she had been told and might have failed to tell Mr Parmar, but that underlines how unfortunate it was that Mr Parmar’s witness statement mis-stated who made telephone calls, would reflect poorly on a person who the defendant chose not to call and could not therefore deal with any criticism, and would show the danger of leaving points of detail to unqualified staff who did not know enough to identify when something was seriously amiss. (It is actually possible that the non-recognition of the absence of the TR1 and the problem was caused by post-completion “formalities” being left to insufficiently trained staff, but it is not the defendant’s case that Mr Parmar was unaware of the absence of the TR1.) The defendant’s case that Fernando were chased by telephone between 30 July and 16 November has no credibility. 107. I also do not accept that the claimant was provided with any information that there was any problem. Post-“completion”: the claimant 108. I accept that Mr Ikbal was told by Mrs Patel on 26 July that completion had taken place; that he collected the keys from Mr Ullah, who had introduced him to the Property, and that shortly after he began an extensive works programme. 109. It is the claimant’s case that he incurred expenditure and liabilities totalling £81,856.15 on his abortive refurbishment project. I shall consider the detail of the expenditure claim later. 110. What happened is only briefly described in paragraphs 39 and 40 of the claimant’s witness statement. I am clear that significant works were planned, and there is no doubt that work started and was in progress, with scaffolding up, when the Phillips children learned that something was happening. 111. Mr Ikbal only became aware that his ownership of the Property was in doubt when he learned of the possession proceedings in early November. He was at that time abroad on a pilgrimage. He contacted his cousin Shameer, and the defendant, and came back to England. He lost confidence in the defendant, and his eventual choice of solicitors was Memery Crystal, who have acted for him in these matters since then. The claim by the Phillips children 112. It is not clear exactly when the Phillips children became aware that someone was doing something at the property. Mr Peter Phillips consulted solicitors with a view to taking action, and was advised that he and his sisters should take action to have themselves registered as legal owners of the Property. Application was made for registration on 27 September, and registration took place on 30 September. (Interestingly, the value stated as at 27 September was £146,000. There is no independent evidence of value in the case). 113. The Phillips children issued proceedings in the Clerkenwell & Shoreditch County Court on 19 October 2010, against persons unknown. In support a witness statement dated 18 November 2010 was made by Mr Peter Phillips. The eventual upshot was that Mr Ikbal was joined as first defendant; he did not defend the proceedings; a possession order was made against him and persons unknown on 21 December 2010, and he was ordered to (and did) pay costs assessed at £4,581.80. The trust-based claim 114. When Sterling received the £35,000 from Mr Ikbal it was held by them as trustee for him. When they paid it to Fernando it was an authorised payment by Mr Ikbal to be held by Fernando as a deposit under the contract and not to the order of Mr Ikbal or his solicitors. No breach of trust is alleged to have been committed by the defendant. The breach of trust claim concerns the balance of £315,000. 115. It is trite to say that each case will depend on its own facts and on the issues which the parties raise before the Court. However, in cases where a lender or buyer claims from his solicitor on the basis of an alleged breach of trust, and seeks an equitable remedy in an amount equal to the sum which the claimant provided to the defendant solicitor to enable a transaction to proceed, the cases appear to me, to raise the questions under the headings (1) whether there has been a breach of trust (2) if so whether the claimant is entitled to the sum claimed or to some lesser sum subject to (3) any application by the defendant for relief under section 61 of the Trustee Act. Within (2) questions may be raised as to the significance of events which have happened between the time of the breach of trust and the time of the judgment, and as to the significance of any argument not about what did happen but that the same loss would have occurred if the defendant had not acted in breach of trust. I regard question (2) as less straightforward than the careful but opposed submissions of each counsel would suggest. Breach of trust 116. When Sterling received £315,000 into client account from Mr Ikbal it was held by Sterling on trust for Mr Ikbal, and they had Mr Ikbal’s authority to pay it to Fernando, at an appropriate time, for the purpose of Mr Ikbal’s purchase of the Property. They did not have authority for it to “change hands” otherwise than in exchange for documents giving Mr Ikbal ownership of the property. Use of the Postal Code was only consistent with Sterling’s statement of Agreed Next Steps if funds remitted to the solicitors for the supposed seller remained in Sterling’s grasp until exchange for those documents. 117. Mr Charlwood accepts that if the use of the Postal Code had not been expressly agreed, then (1) the payment by Sterling to Fernando was unauthorised and (2) it was a breach of trust. On my finding as to the absence of the express agreement there was a breach of trust at the time of the funds being sent to Fernando. This breach of trust is expressly alleged in paragraph 45 of the Particulars of Claim. 118. Mr Charlwood submitted that no other relevant breach of trust was alleged in the Particulars of Claim. (There is an allegation in paragraph 46 as to a payment of £460 from client account being a breach of trust. That payment appears to be a valid payment in respect of the Defendant’s bill, and I say no more about it.) Mr Charlwood submitted in particular that there was no allegation of a further breach of the trust on which the funds had been provided to the defendant (as distinct from breach of trust by Fernando), when the funds were appropriated by Fernando by purporting to “complete” without the necessary documents being provided in exchange for the funds, and that it was not open to the claimant to rely on anything other than the payment to Fernando as being a breach of trust. On one view it is possible that this point does not matter, but, given what I need to say on the arguments about breach of trust and the legal consequence, I shall explain why I reject Mr Charlwood’s submission. 119. I accept that there is no allegation in language comparable to paragraph 45 of the Particulars of Claim that there was any breach of trust on any occasion other than that of the transfer of funds to Fernando. However, in paragraph 47, the assertion is made that the defendant is liable to reconstitute the (£315,000) trust fund and to repay on demand. The paragraph continues: The absence of completion and the incapability of completion are alleged as material matters justifying the remedy claimed. It is very artificial to say that the disappearance of the trust money on the occasion of “completion”, without the necessary documents being provided, can be relied upon (as Mr Charlwood would say, unsuccessfully), as justifying the type of remedy but not as justifying the provision of any remedy. There was a suggestion that for some reason, which possibly for strategic reasons was not explained to me, the shape of the case might have been different if the appropriation of funds by Fernando (by their removal, or the statement that “completion” had occurred) had expressly been alleged as an occasion of breach of trust; I was not told, and cannot see, why that should be so, even though my interpretation of the Particulars of Claim allows for the possibility of liability in the event that I had held that the use of the Postal Code was agreed. There was no application by Mr Dodge to amend. My view of this point is such that if there had been such an application it is likely that I would have acceded to it. 120. I consider it to be correct on the authorities to which I am about to refer to conclude that there was a breach of trust by the defendant when the monies were appropriated by Fernando. If, which is not the case here, one needs to be specific about the time, that would appear to me to be the earlier of the removal of funds from client account and the making of the statement that completion had occurred. 121. I also consider it to be correct to say that the trust on which the defendant received the £315,000 could only be discharged by genuine completion or by the return of that sum. Is the claimant entitled to the sum claimed, being the amount paid away in breach of trust? 122. Mr Charlwood argues strongly that Mr Ikbal is not entitled to any remedy in respect of this. This is not because of any event which has occurred between then and trial. It is because he says that the loss would have occurred even if the defendant had not acted in breach of trust but had acted as it should have acted. The (relevant) cause of the loss was, he submits, the misappropriation at Fernando, and the funds would have reached Fernando and been misappropriated even if the defendant had acted in all respects correctly. 123. His secondary case is that the defendant should in any event be relieved of any liability, under section 61, which is a matter to be addressed separately. The hypothetical scenario 124. It is of course true that the question of the method of completion was expressly addressed by the parties in the Requisition form and the answers to it. It would therefore seem odd to say that if things had been done properly, the question of the method of completion would have been discussed between the solicitors, with a different outcome. I nevertheless consider that if the solicitors had addressed their minds properly to the question of the method of completion in the way which the Postal Code intends, it would have been expressly agreed that the Postal Code would be used. This is because (1) Sterling and Fernando both proceeded as if they were using the Postal Code; (2) it would have suited Sterling to agree to do so; (3) it would very much have suited any fraudster at Fernando to do so. If either solicitor had said on the telephone in any of the conversations whose occurrence is mentioned in the correspondence, “Are we agreeing that we should use the Postal Code for completion?” the other would have said “Yes”. 125. In my judgment Fernando would therefore have got the money into their client account, and there is no reason why it would not have been misappropriated. The outcome would have been the same. To what, if any, remedy, is the claimant entitled, section 61 apart? 126. I do not consider that this case can be solved by what would be the happier course of being able to cite just a particular dictum from one of the authorities. There are four recent decisions, three of them from the Court of Appeal, with differing fact-situations and with different conclusions both on the extent of the remedy applicable to the particular case and on the granting of relief under section 61. They are all in the line from Target Holdings Ltd v. Redferns [1996] 1 A.C.421. My task is to apply the principles of those cases. In Lloyds TSB Bank plc v Markandan & Uddin [2012] EWCA Civ 65 [2012] 2 All E.R. 884 the claimant recovered the full amount which had been entrusted to the solicitors, who did not obtain relief under section 61. In Nationwide Building Society v Davisons [2012] EWCA Civ 1626 [2013] P.N.L.R. no. 12, the claimant recovered at trial the full amount which had been entrusted to the solicitors, but the solicitors’ appeal succeeded in obtaining relief under section 61. In AIB Group (UK) plc v Mark Redler & Co, [2013] EWCA Civ 45 [2013] P.N.L.R. no. 19 the claimant’s claim to recover the full amount entrusted to the solicitors failed, partial recovery being allowed and the solicitors not seeking relief from it. In Santander UK plc v. R.A. Legal Solicitors [2013] EWHC 1380 (QB) [2013] P.N.L.R. no. 24 the claimant recovered nothing, relief being granted. 127. Mr Dodge’s essential proposition is that the fact of the breach of trust entitles the claimant to £315,000, and that nothing takes the case into the category, familiar from the Target decision, in which the Court looks to loss otherwise than to the immediate loss of the monies. Mr Charlwood’s essential proposition is to the contrary: the claimant must, and in this case cannot, prove causation (shorthand for, that he would not have suffered the loss if there had been no breach of trust by the defendant); he is therefore not entitled to reconstitution of the trust fund. I consider that this dispute is resolved in the claimant’s favour by the authorities, as I seek to show. 128. In Lloyds TSB Bank plc v. Markandan & Uddin [2012] EWCA Civ 65 [2012] 2 All E R 884, as in this case, the fraud involved the supposed sale of a property by someone who fraudulently purported to be its owner. Markandan & Uddin, acting for the lender, innocently remitted the lender’s funds to bogus “solicitors”, the fraudsters having created the false appearance of being a London branch of a genuine firm of solicitors which had no true London branch. The use of the Postal Code had been agreed. The fraudsters did not send Markandan & Uddin any documents which the Postal Code required to be sent immediately after completion. 129. The trial was only of preliminary issues. One of them was described by the Court of Appeal as being, if there had been a breach of trust by the solicitors and the solicitors were not entitled to certain defences, What was the measure of the claimant’s loss? The outcome of those issues was a judgment for the lender for the full amount of its advance, £742,500, with interest. The decision was upheld. The appeal was confined to two points: it was argued that the Judge was wrong to have concluded that the solicitors had committed a breach of trust, and wrong to find that, as a matter of causation, their breach of trust caused any loss to the claimant. 130. In supplemental submissions requested by me Mr Charlwood urged that while Rimer L.J. referred to the claimant seeking “repayment” of the money / “reconstitution” of the trust fund, the point was considered at first instance as being about what was “recoverable loss”; the issue of remedy was not before the Court of Appeal. While not in any way detracting from the importance of being accurate with words and concepts, and I hope that I was not inaccurate in making my request, there were causation arguments in the Court of Appeal and it is necessary to see what they were and what the Court said about them. The case may not have been about the description of a remedy, but was very much about whether the claimant was entitled to a sum matching the amount of its money which had been paid away, or a lesser (as the defendant argued, no) sum. 131. Rimer L.J. (with whose judgment Mummery L.J. and Sir Mark Potter agreed) dealt with that topic from paragraph 55, but I need to refer to that part of the judgment which deals with the breach of trust. 132. It was not disputed that Markandan & Uddin held it on trust “until completion” (paragraph 37). They were however authorised by their instructions to “release” the money for the purpose of completing the purchase, and upon such release, the trust would come to an end and [the lender’s] right to recall the money would cease. Rimer L.J. said that: and examined the question whether or not ‘completion’ had occurred. He explained what ‘completion’ in a typical domestic sale and purchase of a property means, summarising: and then rejecting the submission of counsel for the lender that, for the purposes of the Council of Mortgage Lenders Handbook in its applicable form, completion only took place, in registered conveyancing, on registration. 133. Clause 10.3.4 of that Handbook read: At paragraph 46 of the judgment Rimer L.J. held that “It” refers to completion, not to the “release” of the money by M&U, to whom Rimer L.J. referred in the plural “they” rather than the singular “it” which might be used when referring to “a firm”. At paragraph 47 he continued: On the facts, there was no completion, and, obiter, it was held that even if forged documents had been tendered on the occasion of the purported “completion” there would have been no completion properly understood, and the parting with the loan money would still have been a breach of trust by the defendant. It is clear that the key question was whether genuine completion had occurred. (If “release” means (as I understand it to) the moment of authorisation being given for the solicitors in whose account the money is at the time use it to effect completion, or some step in the process prior to the actual moment of completion, the key question in a case where the trust is to hold the money until completion is whether genuine completion occurs.) 134. The causation points were then considered. 135. The first submission, based on assertions that the outcome was materially, if not exclusively, the lender’s fault, is discussed in paragraphs 55 to 59, and, although examined from a number of viewpoints, found no favour. 136. A second submission existed and was addressed. It was not developed orally by counsel but was expressly considered in paragraphs 63 and 64 of the judgment. This submission was that the causation test for breach of trust purposes was the ‘but for’ test, for which reliance was placed on Lord Browne-Wilkinson saying in Target Holdings Ltd v. Redferns [1996] A.C. 421 at 436C: 137. This is the submission which Mr Charlwood makes. 138. What was submitted to the Court of Appeal was that had “completion” taken place by an exchange of money for forged documents, the loss would still have happened. Rimer L.J. said: The reference to paragraph 51 is to the possibility that following receipt of a forged transfer the purchaser and lender might have achieved registration at the Land Registry. 139. While the particular submission was not developed orally, the Court of Appeal considered that the remedy for the money being paid away in breach of trust was full restitution, and provided no encouragement to the argument that if the fraudsters would have succeeded by another route there should not be such restitution. 140. I understand this decision to be authority, subject to any material difference in the instructions in a given case, for the proposition that if the buyer’s solicitor remits funds in breach of trust to those purporting to act for the seller for the purposes of completion under the Postal Code, and the funds disappear on what should have been the occasion of completion but is not completion because no genuine documents of title are provided, then there is a valid claim by the provider of the funds (lender or buyer as the case may be) for full restitution, or if one prefers the expression, for the full amount which had been remitted in breach of trust. There is no support for the proposition that the fact that the loss would have happened anyway deprives the claimant of the right to full recovery of the sum paid away. Such cases are also, often crucially, subject to section 61, which will afford relief to many solicitors who work conscientiously but themselves fall victim to the fraudsters. 141. Mr Charlwood submitted that Markandan is no authority for the proposition that theft by or involving Fernando is something for which Sterling are liable (and that under section 23 of the Trustee Act 2000 a trustee is not generally liable for the default of an agent). I agree that in those words it is not authority for that proposition. But the different proposition is that Sterling are accountable for the money entrusted to them by the claimant; that they must either show that they are discharged from that trust by completion, or return the money (or its equivalent). 142. Markandan was considered in Nationwide Building Society v Davisons [2012] EWCA Civ 1626 [2013] P.N.L.R. no. 12, in which the fact-situation was different, though again it was a Postal Code case. This time an impostor passed himself off using the name of a genuine solicitor and firm of solicitors but an address which was not an office of that firm. He had contrived to have that address publicised in ways such that if Davisons checked the existence of the firm and the address being used for it, which they did, the checks would satisfy them of the existence of the solicitor and of the firm, and that it practised from the address in question. Again this was a case to do with Council of Mortgage Lenders terms, and Davisons were to hold the money on trust until “completion”. The money went to the bogus firm and disappeared. The impostor was not acting for the actual owner of the property. 143. Davisons’ first submission to the Court of Appeal was that they had not been in breach of trust. They had carried out the enquiries required by paragraph A3.2 of the CML Handbook to verify the details of the “vendor’s” “solicitor”, and this, they argued, conferred on them the authority of the lender to pay the purchase money to the practice whose existence they had verified so as to discharge Davisons from the trust imposed by paragraph 10.3.4 of the Handbook, to hold the money on trust until “completion”. This submission was rejected. The trust, it was held, could only be discharged by completion of the purchase or the return of the money to the lender. Davisons did, however, obtain relief under section 61. The causation point arising in this case did not arise for decision there. 144. Both these cases are different from Mr Ikbal’s case, because Sterling were dealing with a genuine firm of solicitors. Although completion did not take place, and Fernando were not acting for the owner of the property, when Fernando received the money they were, whether the use of the Postal Code or not, under an obligation to hold it to Sterling’s order (confirmed by paragraph 41 of Santander UK plc v. R.A. Legal Solicitors [2013] EWHC 1380 (QB)). I do not see that that makes a material difference, on the basis that if the money is to be held to the buyer’s solicitor’s order until completion, the trust on which the buyer’s solicitor holds the money can still only be discharged by completion of the purchase or the return of the money to the provider. 145. The third of the Court of Appeal cases is AIB Group (UK) plc v Mark Redler & Co. [2013] EWCA Civ 45, which did not feature either dishonest solicitors or bogus “solicitors”. The defendant was to act for the claimant lender in connection with a remortgage of property. The lender required a first legal mortgage over the relevant property. The defendant failed to obtain a proper redemption statement from the existing lender (Barclays). In the honest belief that it was acting with the right figures, the defendant applied the money it had received from the claimant lender by (1) paying £1,235,785.07 to Barclays and (2) paying the balance to the borrowers. The result was that the borrowers received £273,774.42 more than they would have if Barclays had been paid in full. The correct advance was made by the claimant, but that part of it went to the wrong recipient. Barclays, not having received all the moneys outstanding to them, would not provide a discharge of the existing mortgage. Accordingly the claimant could not be registered with a first legal mortgage; in due course the claimant was able to obtain a second charge. On default, repossession and sale, Barclays were paid off; the claimant did not recoup its loss in full. The question which arose was whether the claimant was entitled to reconstitution of the trust fund in the defendant’s client account, or the amount which Barclays had been able to claim from the sale. The trial Judge determined that the compensation should be the latter (plus interest, bringing the total to £323,501.38). The lender appealed. Its case was that there was never “completion of the remortgage transaction in accordance with its instructions” and that it was entitled to equitable compensation in an amount (after giving credit for recoveries) which would restore it to the position it was in immediately before the breach occurred. The issues in the Court of Appeal were: 146. These were the subject of a judgement by Patten L.J., with whom Sullivan and Arden L.JJ. agreed. 147. Patten L.J. cited substantial passages from the speech of Lord Browne-Wilkinson in Target. In paragraph 18 he cited the passage at p.436A-F. That includes the passage at 436C-D from which Rimer L.J. had, in the Markandan and Uddin case, noted reliance by the appellant on the first of these sentences: That particular passage differentiates, by reference to the event of completion, between cases in which the solicitor can be required to restore to client account monies wrongly paid away and cases in which it is appropriate to consider what happened after the breach of trust or what would have happened if the breach had not occurred. In the former case the provider of funds will recoup its outlay; in the latter a different approach is taken to the identification of loss. 148. Patten L.J. concluded (at paragraph 40) that the relevant procedures required in that remortgage case were such that Redler were not authorised to release the monies until they had the relevant documents (including a certificate of discharge of the existing mortgage or a solicitor’s undertaking to produce such documents once the existing mortgage was redeemed) in their hands, which they did not. This led to the conclusion (at paragraph 42) that the Judge was wrong to treat the breach of trust as limited to the release of the £273,777.42. Thus on the first issue for the Court of Appeal, it was held that there was a breach of trust and that it extended to the whole of the £3.3m mortgage advance. 149. He then turned to causation and remedy. He said of the lender’s argument, that they were entitled to have the fund reconstituted: 150. Recording the Judge’s finding that if the solicitors had acted correctly, Barclays would have been paid in full and the transaction would have proceeded with the lender obtaining the requisite first legal charge, he said that the case was fundamentally different from the Markandan and Davisons cases 151. In paragraph 47 he said this, on which Mr Charlwood relies strongly: 152. He went on to consider as at the date of trial and with the benefit of hindsight what loss AIB had suffered, the answer being that it enjoyed less security for its loan than would have been the case had there been no breach of trust, and compensation was calculated by reference to the security shortfall. 153. The words “In a case such as the present one” are very important. It was in the immediately preceding paragraph that Patten L.J. had said that the case was fundamentally different from the position in Markandan and Davisons, where had the solicitors not released the monies in advance of completion there could have been no transaction and no loss would have been suffered at all. A point of differentiation was that: 154. In my judgment Mr Ikbal’s case is in the same category as the Markandan case: one in which the provider of the funds was a victim of a fraud and received nothing in return from his money (apart from an undertaking from a dishonest firm of solicitors which was not acting for the owner of the property; I have explained why I consider that irrelevant). It is not in the same category as AIB’s case, in which the bank did receive security. 155. My understanding of these authorities as relevant to this case is that: This is where I differ importantly from Mr Charlwood’s submissions. In these cases there is a loss of the fund, which is paid away. The breach of trust causes that loss. The question is whether in a particular case the claimant is entitled to be compensated for that loss or, if different, for the loss identified in the way just explained in the quotation from Target. 156. After the hearing in this case, Andrew Smith J. gave judgment in Santander UK plc v. R.A. Legal Solicitors [2013] EWHC 1380 (QB). I am grateful to counsel for citing this (and for all their work) and making written submissions on it. 157. In that case the lender, one of Santander’s subsidiaries (Abbey) agreed to lend (in effect) £150,000 in support of a residential property purchase and on condition that they obtained a first legal charge. It was another case of a “sale” by an impostor: the true owner of the property was not selling it at all. The fraudster(s) used another genuine firm of solicitors, Sovereign, which was infected by dishonesty and in due course was the subject of an intervention. 158. R.A. Legal Solicitors acted for the “purchaser” and Abbey, and acted honestly throughout. 159. Sovereign fraudulently procured that the honest solicitors acting for the purchaser, R.A. Legal Solicitors, released to Sovereign the price for the supposed purchase. The purchaser did not obtain title and Abbey did not obtain a first legal charge. Abbey sought reconstitution of the trust fund or damages. R.A. Legal solicitors denied breach of trust, alternatively relied on s.61 of the Trustee Act 1925. One of the questions was whether any breach of duty by the defendants had caused Abbey loss. 160. The particular steps in the chain of events were that: 161. The Judge described the first two issues thus: 162. At paragraph 44 the Judge held that the loss suffered by Abbey had no connection with their actual criticisms of the way in which their solicitors had conducted the transaction. 163. The breach of trust claim was considered from paragraph 44, and the Judge distinguished between the events of 28 July 2009 (when money was transferred to Sovereign) and those of 29 July 2009 (when the bogus completion took place, with R.A. Legal already being in possession of the fraudulent TR1 which Sovereign had sent). 164. The Judge analysed the three Court of Appeal cases, and the detailed argument of counsel for the defendant as to why, despite them, it should be held that there was no breach of trust, but concluded that there was still a breach of trust: 165. As for 28 July 2009, he doubted but did not decide whether a breach of trust occurred then. The only breach of trust he held had occurred was the “release” by R.A. Legal of the money to Sovereign in the belief that R.A. Legal held a valid TR1, when what they held was a forgery. There was not held to be a breach of trust at the point of the money passing to Sovereign’s client account; the only proven breach occurred when the money was “released” to them for a completion which, because of the absence of genuine documents, did not occur. 166. While I understand the argument that the movement of funds to the client account of the person purporting to be the solicitor for a seller, and appointing that person agent to effect completion, is, in a Postal Code case, all authorised and therefore not a breach of trust, it seems to me clear on the authorities that if, where the trust is to retain the fund until the trust is brought to an end by completion, there is a breach of trust if the funds leave the control of the solicitors without completion occurring (and so, on the occasion of the misappropriation by the rogues). 167. The second of the issues was whether the breach of trust caused Abbey loss. 168. The defendant did not argue that the identified breach of trust did not cause Abbey loss (paragraph 64). 169. The Judge considered 7 specific criticisms of the conduct of the defendant. To the extent that the defendant was at fault, he concluded that no loss was connected with the behaviour which constituted fault (paragraph 44; another possible criticism was also considered non-causative at paragraph 64). 170. From the fact that the defendant did not dispute that the breach of trust had caused loss, and the Judge’s conclusion that no criticised behaviour of the defendant had caused loss, the case was dealt with as one in which loss was caused by a breach of trust which occurred without the behaviour of the defendant as to that breach being a subject of valid criticism (certainly no breach of a duty of care). 171. In that connection, I note that the fourth and fifth complaints (set out in paragraph 37) concerned the facts that (1) the solicitors did not agree use of the Postal Code (paragraph 21) and (2) the defendant did not seek and Sovereign did not provide an undertaking about how Sovereign were to deal with moneys that were paid to Sovereign if completion did not take place. The fourth complaint was that the defendant: 172. Although factually correct, this complaint was specifically rejected by the Judge (paragraph 41). One of the points noted, before the Judge observed that the complaints were inconsequential because the fraud was effected by Sovereign failing to complete, was that it was clear that when the defendant sent funds to Sovereign without an express undertaking Sovereign held them to the defendant’s order unless and until the transaction was completed. 173. As mentioned, the defendant was relieved from liability under section 61. 174. Unlike the position in that case as to the identified breach of trust, Mr Charlwood does argue that loss was not in any relevant sense caused to Mr Ikbal by the breach of trust, because the outcome would have been the same even if the defendant had not acted in breach of trust. (I refer to the identified breach of trust because of the terms of paragraph 64 of the judgment in the R.A. Legal case. In the case of a possible argument about an unpleaded earlier alleged breach of trust which allegation would have been rejected, the Judge also said that it would also have failed because Abbey would not have withdrawn the mortgage offer: 175. I do not accept that, for the purposes of a claim based on breach of trust where the trust is to retain the funds until completion, and completion does not occur, Mr Charlwood’s argument is correct. What the claimant loses when the breach occurs is the amount of money which is not retained when it should be. While the authorities show that the history in cases of actual completion will result in an award of compensation reflecting the loss which the claimant would not have suffered but for the breach, they do not show that if completion does not occur compensation will be awarded on that basis. In cases in which completion does not occur, and was what was needed to discharge the trust, the solicitor must restore the amount which has been lost from the trust fund unless he is relieved of liability under section 61. 176. I have considered whether what Andrew Smith J. said about the possible argument about the unpleaded allegation requires me to hold otherwise. I do not consider that it does. Markandan considered the argument to the effect that the fraudsters would always have had their way, and I do not see that what Andrew Smith J. said about the significance of what Abbey would have done if asked in certain circumstances for instructions should lead to an approach to this case different from that in Markandan. 177. Subject to the section 61 application, I would order payment to the claimant of £315,000 and interest. I shall deal with that application after considering the common law claims in which the way in which the defendant did its work is criticised. The common law claims 178. There were undisputed contractual (and parallel extra-contractual) duties of skill and care. 179. There is a fringe issue as to how sophisticated a buyer the defendant was entitled to suppose the claimant to be. Mr Parmar said that the claimant informed him that he was a big property type tycoon and was not a first time buyer, and that he informed Mr Parmar that he was very familiar with the process of buying and selling properties. I do not doubt that whatever was said led Mr Parmar to the correct belief that the claimant had bought several properties before and was familiar with the process as it would appear to a buyer. The claimant no doubt presented as a man of property experience, confidence and success, and his witness statement reference to his knowledge of building work and site management being vast does not suggest that he would have downplayed in his description of himself. I do not consider that on any view the defendant had material to justify a belief that the claimant was familiar with any part of the sale and purchase process that would not be visible to a buyer or a seller who had engaged in a sale or purchase which had not presented a significant legal problem. 180. Six categories of breach of the duty of care, and resulting damage, are alleged. Breach of trust repeated as breach of duty of skill and care 181. The first was that that the breaches of trust were also breaches of the duty of skill and care; this was denied, consistently with the Defence position on breach of trust. I was minded to hold that there was a (single) breach of the duty of skill and care in this respect, in that it was not reasonably skilful or reasonably careful to fail to go through the applicable procedure to establish agreement to use the Postal Code, but paragraph 37 of the judgment of Andrew Smith J. suggests otherwise. I do not consider that this failure made a difference to the outcome of events and so if this had been a breach of duty it did not give rise to actual damage. Failure to press for a TR1 182. The second category was the failure to require Fernando, on or after 26 July, to hand over a duly executed version of the TR1 (but it is accepted by the claimant that they would never have done so). The Defence appeared to suggest that there was no such duty. In any event breach was denied there on the basis that the Defendant did chase by telephone and by letter, and that Fernando said that it would be in the post, though at trial it was accepted that the defendant should have done more than it claimed to have done. 183. There was such a duty. In order for the conveyancing work to be finalised, with registration procured, the purchaser’s solicitor obviously needs to receive a duly executed TR1, so if no executed TR1 arrives he needs to take steps to get it. In cases where the Postal Code is used, while it is the responsibility of the vendor’s solicitor not to part with the purchase money without being in possession of a duly executed TR1, and to send it to the purchaser’s solicitor, the Code provides that the document is sent at the purchaser’s solicitor’s risk. The party who will know whether a document which has been sent has arrived is the addressee, not the sender. It is clearly for the purchaser’s solicitor to find out what has happened if the document does not arrive in the ordinary course of first class post or document exchange. 184. A reasonable system would involve diarisation of a date shortly after completion to check receipt (or some other reminder system), and rapid follow-up if by that date no executed TR1 had been received. I consider that the date and time on which follow-up should have started was no later than on receipt of the first post on 30 July (the Friday following the “completion” Monday), and that the defendant was in breach of duty from them. It was a very serious breach of duty. 185. It is speculative what would have happened if pressure had been applied. Two features appear to me to point in opposite directions. The first is that the behaviour at Fernando was thoroughly dishonest and someone was creating and sending false documents, false in the sense at least that they were representing instructions on behalf of a bona fide client. The second is that no TR1 was ever sent: if they were willing to tender a false TR1, why did they not do so? I think it unlikely that the omission was accidental. 186. The causation argument here was that there was a chance that Fernando would have provided a forged TR1 which would have enabled registration to occur; that if that had happened the Phillips children would have needed to apply for alteration of the register pursuant to Schedule 4 of the Land Registration Act 2002; and that the claimant would then have had the benefit of the indemnity provisions of Schedule 8 of that Act. The Defence denies that there was any more than a negligible chance of this. I shall deal with the issues arising below. Failure to advise the claimant to take action 187. The third allegation was of failure to advise the claimant that, in the absence of a duly executed version of the TR1, he should do the following: 188. The Defence admitted that such advice was not given, but denied breach of duty. At trial it was accepted that the defendant should have advised the claimant to seek the return of the completion monies in default of an executed TR1 and that in default of either an option would be to seek a freezing injunction. The Defence position was that: 189. In the circumstance that it is accepted that the defendant should have advised taking some substantial action (i.e. in the first instance demanding monies back) it is probably unnecessary to consider further the question of what actually happened. 190. The suggested justification pleaded was that the defendant told the claimant that nothing had been received from Fernando but was told not to take further action at that time. This was reflected to an extent in paragraph 41 of Mr Parmar’s witness statement, which I quoted earlier: (It was the second sentence that was withdrawn during cross-examination.) The version of the account in that sentence was itself at variance with the Defence in that it said that the claimant told Mr Parmar to chase the TR Form “as and when I can” (which Mr Parmar did not do). Mr Ikbal did not accept that he was told this. I prefer Mr Ikbal’s evidence on the point. 191. In any event what Mr Parmar claims to have said is not in my judgment adequate. In my judgment a solicitor who was going to report that the TR1 had not been received should have been armed with information from the seller’s solicitor as to any explanation (unless he was reporting immediately before telephoning or writing by e-mail or fax to find out); and if he was reporting without being in possession of a satisfactory explanation he should have pointed out that the non-arrival of the TR1 was not adequately explained, was very serious, and should be the subject of action 192. There was a breach of duty in this omission. 193. I do not consider this breach causative of loss. I judge that if the claimant had realised that there was a serious problem he would have taken action of some kind, but I think it most unlikely that any action taken would have saved the day, because of my judgment that the money would have gone before the time that a report of concern should have been made to the claimant. Warning not to do work at the property 194. The fourth allegation was of failure to advise the claimant that: 195. The claimant says that if he had been warned of this he would not have incurred expenditure. 196. Breach in the first respect is admitted. 197. Breach in the second respect was denied on the basis that such advice was not necessary. The reason pleaded is that by letters of 30 July and 15 September the defendant told the claimant that it still required funds to pay stamp duty and register the claimant as owner; it is said that as a business developer he knew or should have known that he should not expend money on the property until registered as its owner. However, at trial the defendant accepted that there would have come a time, which it suggested would have been on 9 August (2 weeks after “completion”), at which it should have advised the claimant that there appeared to be a problem with the transaction and that the claimant should not incur expenditure on the Property pending resolution of that problem. This is a realistic recognition of a duty (which was clear given that Mr Parmar knew that the claimant was going to do significant work on the property), and on the dates it makes no difference that I would say that this advice should have been given at some stage in the week before. What matters is that I have not reached the conclusion that it was a breach of duty that it was not given during the working week 26 to 30 July. Exactly when the advice should have been given depends on when the absence of the TR1 should have been queried and how successful Fernando might have been in fobbing off an enquiry with the only legitimate answer (that they had sent the document as procedure required and it must have gone missing). I shall deaf with causation and damage on this issue separately. Failure to warn of suspicion of fraud 198. The fifth allegation related the time before “contract” and between “contract” and “completion”. 199. It was said that certain matters should have caused the defendant to observe unspecified “obvious risks” and that the defendant should have drawn attention to and advised on matters to which I am about to refer. When I asked what the “obvious risks” were said to be, and what advice should have been given, Mr Dodge explained that the case was that the solicitor ought to have advised that the matters mentioned were suspicious, that the manner in which the transaction was proceeding was suspicious, and that even in 2010 (before the autumn property fraud warning of that year) the existence of fraud in a conveyancing context was sufficiently well known that he should have advised that a transaction with these sort of suspicious features gave rise to a suspicion of fraud. It was not suggested that the defendant would have been justified in expressing an opinion that there was a fraud, but it was submitted that a solicitor should have said that he did not like the feel of the matter. 200. It was not disputed that a solicitor might owe a duty to warn a client that a transaction was suspect in this way, but what was disputed was that the facts of this case gave rise to such a duty. 201. The features said to be suspicious were that: The draft contract gave the address of the vendor as that of the Property, rather than that appearing on the register of title; The draft contract misspelt the address of the Property as being Brook Road; Special condition 5 referred to an attached list of chattels, but no list was attached. The property information, additional property information, and fittings and contents forms, were all undated; On each of those forms the address of the Property was spelt Brook Road; On each of those forms the information was said to have been given by Mr Phillips Philip (as opposed to Mr Philip Phillips); Details of the service suppliers to the Property and of its liability to Council Tax were substantially incomplete. The contract form received from Fernando was signed by them rather than by Mr Phillips; Mr Phillips’ address was still given as that of the Property; There was no list of chattels attached; The address of the Property was misspelt Brook Road in the Requisitions. 202. These features show an inattention to detail, and the defendant should have attended to such detail and claims to have done so to some of them. What matters is not what he actually observed and did. What matters is that the features are said to have been suspicious, to have been suspicious to an extent such that no solicitor acting with reasonable professional skill and care should have failed to warn his client of a suspicion of vendor fraud, and that (admittedly) the defendant gave no such warning. It is not happy that one has to acknowledge the likelihood of carelessness in work of this kind, but the reality is that a solicitor in the defendant’s position, not conscious of a risk of vendor fraud, might well be inclined to ascribe to carelessness something whose real cause was there being a fraudster at work. 203. I do not consider that, even taking them all together, the defendant’s duty was to form the opinion that they gave rise to a suspicion of fraud, or a consequent duty to warn his client of such an opinion. This is the kind of allegation which is easily made with the hindsight advantage of knowing that the documents were provided by someone on the inside of a fraud. The allegation would be stronger if at the time solicitors generally should have been alert to the possibility of vendor fraud (whether when acting for someone claiming to be a vendor, or a purchaser), but this period of the case was before the 2010 property fraud warning, and one should not require an exaggerated sense of suspicion. The mis-spelling points 204. Those who attend to detail closely do sometimes make observations which lead to the uncovering of fraud. But in modern life spelling mistakes abound, in both manuscript and, probably especially, typescript. As a point on it arises in this case the eye is caught by errors, such as “Summery” for “Summary” on a standard form document checklist sometimes used by Sterling (but not properly used in this case). Another example I have noticed is that in a letter of 16 December the claimant’s solicitors inadvertently referred to building works as including the fitting of a “loft conversation”. One of the errors to which attention was drawn was the word “loose” being used in place of “lose”, as in Fernando’s letter of 14 July in which it was said that if completion was delayed: a spelling which was used again the following day. 205. The appearance of the word, which I would spell as “lose”, as “loose”, is evidently common (as reference to any internet search will show; coincidentally I saw “loose” where I would have expected “lose” three times in slides in a one-hour university lecture I have attended since the hearing): the spelling “loose” appears in paragraph 7 of Mr Parmar’s witness statement. 206. I have already multiplied the examples and could do so many times over. “Brook” for “Brooke” is an easy error, which should not have been made and should have been eliminated. It seems to me unrealistic to regard it as an error of a kind which should lead to suspicion of the counterparty or his solicitor, or as supporting suspicion which might arise from anything else. Neither considering documents of Fernando as a group, nor considering them as part of the overall impression of Fernando’s work, do I see them as leading an ordinarily competent solicitor to doubt the integrity of the solicitor or client on the other side. That applies to all the spelling errors which are littered over the documents. The signature in Fernando’s name 207. I was not referred to material to show that a solicitor should, at that time, have regarded this as suspicious. The address given for Mr Phillips 208. It does not appear to me to matter that the address given was not that shown in the registered title for the property as Mr Phillips’ address at the time of acquisition. There is no reason for any surprise that an address which was relevant almost 50 years earlier might not continue to be relevant. 209. There is no significance in the mere fact of the seller’s address being given as that of the Property. There would be a question if it were said that the address of an unoccupied property were actually being used for correspondence. It was not established that that was ever said. The property / contents information forms 210. Neither when Mr Parmar was being cross-examined about these documents nor on looking at them again was I persuaded that these documents should have aroused suspicion of fraud. I agree that on a sale of an unoccupied derelict house, it is surprising that the presence of eight non-fitted domestic appliances should be indicated in section 12 of the contents form, with the indication that the cooker would stay and the other seven be removed; and the absence of council tax details is also surprising. When one considers items such as why there is no date, it is not apparent why one should move from there towards a suspicion of fraud, and the aggregation of matters does not seem to me to raise that suspicion. It is more likely that a buyer would raise concerns on going through this form (spotting these “white goods” said to be in a house which he considered contained only “clutter and mess”) than that a solicitor, other than one being particularly vigilant, would do so. The wrong name – Mr Phillips Philip 211. Again, I do not see why this should appear an indicator of fraud as opposed to carelessness. It is not as if one can identify a reason why it might suit a fraudster to put the names in the wrong order. The absence of a list of chattels 212. The absence of the list of chattels to which the contract terms refer is bad and should have been addressed. Probably the appropriate course of action was that there should be no chattels mentioned in the contract and therefore no list. I do not see that this points to the risk of there being a fraudster at work. What if Mr Parmar had voiced a suspicion of fraud? 213. If I am wrong, there is the question whether, before or after contract, Mr Ikbal would have withdrawn from the transaction. A witness’ opinion at trial as to how he would have behaved in circumstances with which he was not actually confronted has to be evaluated not only for its truthfulness but for its realism. 214. The correspondence does disclose threats to withdraw if the vendor’s solicitors did not relieve the pressure of the demands being made as to time, and I accept that Mr Ikbal was not so personally committed to the proposed transaction that he would have gone ahead regardless (even if he thought, which cross-examination showed he may well have done, that he was getting a bargain). Apart from his own direct financial interest, he was also borrowing from members of his family and had their interests to consider. 215. I do not however think that he would in practice have been deterred by the defendant mentioning these features and a resulting suspicion of fraud. The view which I formed as I listened to his evidence about why the particular features would have mattered to him was that, perfectly honestly, he had come to believe that they would have mattered but that his belief was unrealistic. 216. Firstly, I think he would have regarded inaccuracies in forms, including spelling mistakes, as irrelevant. Secondly, I do not think he would have been disturbed about the absence of a chattels document, though he might have said that the point should be cleared up. This is because nothing in the evidence leads me to suppose that he had any interest in any chattels: he wanted to refurbish the property comprehensively and there was, as he said, “only clutter and mess”. Thirdly, I do not think he would have been worried about the address for Mr Phillips being given as that of the property, which was, after all, a property which he supposedly owned, even though he clearly did not live there. The address of the owner was an irrelevance. (What would have been suspicious would have been any statement that correspondence was being sent to an address of an unoccupied property.) Fourthly, any interest in the service suppliers and liability to Council Tax would have been likely to be in the information being obtained rather than in a suggestion that there might be an indication of fraud: he would have wanted to shop around for the best supplier but thought he needed to know the current supplier to obtain reconnection. Fifthly, he had been introduced to the property by Mr Ullah, who he said had introduced “numerous” properties to him before, and of whom he was not at that time mistrustful – the description of a very jovial and “typical pushy estate agent” did not suggest mistrust of what lay behind the pushiness. He had met on site a man introduced to him as the vendor’s nephew and had not felt anything was amiss. Finally, I think he would have backed his own judgment against that of Mr Parmar, whose services he was using for the first time, and his own judgment would have been that any fears expressed were unrealistic. 217. My view of that is all the stronger for the period after exchange of “contracts”: the idea of trying to achieve extrication from a supposed contract on the basis that one suspects fraud but is not justified in alleging it is unrealistic, and I cannot see Mr Ikbal attempting it if properly advised about the matter. The Postal Code 218. The last allegation was that the defendant was in breach of duty in considering that it was entitled to complete in accordance with the provisions of the Postal Code. 219. This is correct in that the Postal Code should not have been used without express agreement to do so. This does not assist the claimant in a breach-of-duty-of-care claim, in which it is met by the point that if the defendant had acted correctly I am satisfied that use of the Postal Code would have been agreed. 220. Having now reviewed the criticisms made of the defendant in the case as a whole, I shall deal with the question against relief under the Trustee Act 1935 before dealing with the common law damages questions. Relief under s.61 of the Trustee Act 1925 221. Section 61 reads as follows: 222. The onus of proving honesty and reasonableness and that he ought fairly to be excused is cast upon the trustee (Underhill and Hayton, The Law Relating to Trusts and Trustees, 18th. Edition, article 93.1). 223. The standard of reasonableness is just that: the section does not predicate that the trustee must necessarily have complied with best practice in all respects. In Lloyds TSB Bank plc v Markandan & Uddin Rimer L.J. said that: In Nationwide Building Society v. Davisons the Court had to consider whether the Judge was right on reasonableness and, if not, how the discretion conferred by s.61 should be exercised by the Court of Appeal, and considered the case of a solicitor who had not displayed the high standard mentioned by Rimer L.J. in the earlier case. At paragraph 48 the Chancellor said that the standard was that of reasonableness, not perfection. 224. The same paragraph of Nationwide Building Society v. Davisons is important for another reason, which is the identification of what conduct of the defendant it is relevant to consider when considering whether the trustee has acted reasonably. Davisons were granted relief under s.61. A factor mentioned in paragraph 50, on the exercise of discretion, was that their lapse from best practice, if any, did not cause the loss to the claimant. 225. The topic was considered by Andrew Smith J. in the R.A. Legal case from paragraph 66. At paragraph 70 it was sufficient for his conclusion on reasonableness that he had concluded that none of the criticisms made of R.A. Legal were connected with Abbey’s loss. At paragraph 71 he accepted the submission that that criticisms of the defendant’s behaviour could be taken into account for the purposes of the exercise of the discretion, even though the particular criticisms were not causative of the loss. 226. Considering first honesty, Mr Charlwood’s opening note recorded correctly that “dishonesty is not alleged”. Although that is correct, it does not dispose of the issue: it is for the trustee affirmatively to prove honesty, and the fact that those acting for the beneficiary may not have enough material to justify alleging dishonesty in a Statement of Case does not relieve the trustee of that task. 227. I was, from first reading it, alive to the statement made on 2 November 2011 that Fernando were chased by telephone to provide the TR1 and that their response was that they were waiting for their client to sign the document and return it back to them (an answer which would be utterly astonishing to any buyer’s solicitor who used the Postal Code). This paragraph, which I continue to read with great surprise, although I have pointed out that it might be explained by a lack of understanding by unqualified staff of the significance of what was said, was not explored in cross-examination and was the subject of only limited enquiry by me, Mr Parmar replying to the effect that he recognised in the witness box that the answer said to have been given by Fernando would have made alarm bells to ring very loudly, a ringing which is not reflected in the documents. 228. Although I did not regard it as a foregone conclusion that honesty was proved, I do find it proved. 229. I approach reasonableness on the footing that it is not necessarily quite the same question under the statute as it is in relation to a duty of skill and care (see particularly paragraph 69 of the judgment of Andrew Smith J. in the R.A. Legal case). 230. As to reasonableness, I distinguish between two periods, the periods being up to and including 29 July 2010 and on and from 30 July. 231. In the first period Mr Dodge focusses on the failure to use the correct procedure for the use of the Postal Code, being the failure to see that an agreement was made, or the failure (if, contrary to my decision, it was made) to make or record it in writing. He says that anything less would be significantly to prejudice the position of the client, and an utter carelessness to protect his client’s interests. 232. I consider this over-stated, for exactly the reason given by Andrew Smith J. in paragraph 41 of the R.A. Legal case (at the point’s briefest, the solicitor who receives money which should not have been sent is not free of obligation about it). But I am reluctant to say this is reasonable behaviour by a solicitor for the purposes of section 61. As with telephonic exchange of contracts, standardised procedures have been introduced to enable the efficient use of time and resources but with safeguards designed to maintain proper protection of clients. The rash of cases about frauds exploiting the postal completion system suggests to me that it is important that solicitors should be scrupulous in the use of such procedures and not cut corners. The defendant’s approach was casual – not making the express agreement, and reading the answers to Requisitions to fit the assumption which was being used instead of express agreement. I do not consider that reasonable. 233. The second period is from the date at which I consider that the defendant ought to have realised that the TR1 had not been received and was overdue. On my conclusion as to the facts the failure of the defendant to address this was very unreasonable. I should perhaps say “very unreasonable indeed”, because even on its own case (which I have rejected) as to some sporadic telephone calls between July and the date of the intervention, and one letter written at least 15 weeks after the TR1 was overdue, I would still have regarded the defendant’s conduct as very unreasonable (quite apart from the failure to keep the client properly informed of, and advised about, the significance of the problem.) 234. It is then necessary to consider whether the unreasonable conduct is “connected with the loss for which relief is sought” (taking into account the entire section of the judgment in Nationwide v Davisons dealing with s.61, and in particular the reference in paragraph 50 to the unreasonable conduct not causing the loss there). 235. The unreasonable conduct in failing to agree the use of the Postal Code, and the loss, are part of the same history: it was the use of the Postal Code and the remittance of the funds by bank transfer that enabled the fraudsters to access the funds. But that would have happened in any event: if the defendant had expressly agreed the use of the Postal Code the outcome would have been the same. So although the events are part of the same history, there is not the connection between them which I understand to be envisaged by Nationwide v. Davisons. 236. The unreasonable conduct on and after 30 July was not connected with the loss, which in my judgment had already occurred. 237. It follows that, for the purposes of section 61, the defendant has proved that he acted reasonably. This is, and is only, because of the lack of causal connection between the defendant’s behaviour and the loss. 238. The third step is considering whether the trustee “ought fairly to be excused”. 239. Firstly, although Mr Charlwood submitted that “no discretionary basis for refusing relief has been suggested” it appears to me that, although (as in Nationwide v Davisons) there may be cases where once honesty and reasonableness are established there is nothing of significance to discuss on discretion, it is for the trustee to show why the discretion should be exercised in his favour. 240. Secondly, I have come to the conclusion that, from start to finish, the work of the defendant was conducted casually, even though I understand that the “connection” factor leads to the conclusion that the relevant work was conducted reasonably. I have made clear my particularly strong view of the ineptitude after “completion”. This is a case in the “pervasive and compelling” category (see the R.A. Legal case at paragraph 69) if one looks at the casualness overall. 241. Thirdly, there is not a point at which one can say both that the defendant should have behaved differently and that if it had done so the loss would not have been sustained. 242. Fourthly, I raised with counsel the question whether it might be appropriate to take into account, in considering whether the trustee ought fairly to be excused, that the Solicitors Act 1974 and rules made under it compel solicitors to maintain insurance very much larger than the sum at stake on the breach of trust claim, and that the main policy underlying this is to provide protection to solicitors’ clients (Swain v. The Law Society [1983] 1 A.C. 598 at p.608E per Lord Diplock and p.618B-C per Lord Brightman). It is well known that the premiums payable for this insurance are a substantial overhead for many solicitors’ practices, and that overhead needs to be covered in their overall charging arrangements. Neither counsel were aware of this point having been considered in the authorities, and there are several points that can be considered either way, including the existence of the Compensation Fund. I express no view on the point’s relevance. 243. Were it not for the causation point, I would refuse relief. The claimant was ill served by the defendant. But it appears to me that the situation is not materially different from that described in paragraph 50 of Nationwide v. Davisons: I therefore will give relief from liability for the £315,000. Damage and damages from the breaches of duty at common law 244. Four heads of damage are said to have followed from the breaches of duty alleged. Of these I have already rejected the second and fourth. I do not consider that the claimant would have withdrawn from the transaction (Particulars of Claim paragraph 53) and I do not consider that there was a worthwhile chance of recovering anything from Fernando by swift action (paragraph 52). 245. The first head of damage is the one mentioned as a possibility in paragraph 51 of the Markandan decision. The argument is (1) there was a (worthwhile) chance that pressure on Fernando would have produced an executed version of the TR1 (albeit a forgery); (2) registration could and would then have been effected; (3) that would have put the Phillips children in the position of needing to apply for alteration of the Register pursuant to schedule 4 of the Land Registration Act 2002; (4) (the TR1 being a forgery) the claimant would have had the benefit of the indemnity provisions of schedule 8 of that Act. 246. Given the lack of information about anything at Fernando, it is difficult to judge the extent of any likelihood that pressure on Fernando would have produced an executed version of the TR1. Facts point in opposite directions. That there was dishonesty within the firm I am satisfied. A rogue had produced a fraudulent “contract” (not a forged one: the fraudulent element was the representation that Fernando had the owner’s authority to sign, when the person involved at Fernando knew the transaction to be bogus) – and so was obviously willing to produce fraudulent documents. A fraudulent TR1 could have been sent following “completion”, and it might have given them some breathing space before the fraud was discovered. And it was not sent. In a planned fraud the omission was surely deliberate. That could be connected with the fact that signing the name of Philip Phillips and the need of witnessing might have been a particular criminal bridge, forgery, which the fraudster would not cross or would not cross unless pursued so hard as to feel it necessary to take that extra risk. The fact that they had produced fraudulent documents before leads me to believe that there is some chance that a fraudulent TR1 would have been produced, but I do not consider that chance at all high. I think it is much more likely that pressure would simply have resulted in Fernando being the subject of intervention in early August rather than in September. 247. There is then the question whether such a TR1 would have duped the defendant and then HM Land Registry. In this matter at least the defendant could well have been duped. There is no real basis to make a judgment as to the degree of probability of the Land Registry being duped by a document of this kind. Neither do I have adequate material to help me judge the likelihood of registration being effected before 27 September, the day on which the Phillips children applied for registration, though their registration was effected in 3 days from then. 248. I agree that if the claimant had become the registered proprietor before the Phillips children applied for registration, they would have needed to apply under schedule 4 to the Land Registration Act 2002. I cannot see why they would not have succeeded in such an application. In that case indemnity would have been available to the claimant. 249. In my judgment a chance of some value was lost. It is very difficult to evaluate it, but, mainly because of my view of the unlikelihood of a forged TR1 being provided, it is at the bottom end of chances which can be regarded as having a real value. I consider that £35,000 (10% of the purchase price, although about 25% of the value suggested by the Phillips children) is the most realistic figure. 250. The third head of damage is that the claimant would not have incurred the following expenditure: 251. It is of course not certain what would have happened if the defendant had done what should have been done and enquired of Fernando what had happened to the TR1. I have indicated my view that there is a distinctly unlikely possibility that a forged one would have been provided. It is more likely that it would not. My view is that it the most likely thing is that a point would have been reached in the week commencing 2 August 2010 at which the defendant should have alerted the claimant to the fact that the TR1 had not arrived and that its absence was serious in that he might not have what he had paid for, the ability and right to be registered as the property’s owner. Mr Charlwood’s suggestion was 9 August (a week for the document to arrive, followed by a week perhaps spent investigating with the carrier the assumed claim that the document had been sent), and nothing turns on that difference. 252. If that had happened the claimant would have had a dilemma, because if he owned the property he needed to get on with the works, but if he didn’t he would not wish to pay substantial sums for work to a property which he did not own. I consider that, regardless of solicitors’ etiquette, the claimant would have investigated much as he did when he was told of the possession proceedings (when on the spot investigation was earned out by his cousin Shameer: paragraph 42 of the claimant’s witness statement) and that Fernando would have received an unwanted visitor and have been unable to satisfy him (no doubt the claimant or Shameer would have been shown the door rather than being met by anyone other than the person on reception duties; the visitor would not have been satisfied by the visit. Either the defendant would have been prompted into taking strong action, including reporting to the SRA, or the claimant would have changed solicitors (as he did when he lost confidence in the defendant in the context of the possession claim)). Probably Fernando would have been the subject of intervention by the SRA. In that event, or in any event, the claimant would quickly have realised that there was a very serious likelihood that he had been defrauded and at that point he would have stopped work. 253. I do not think it possible from the documents to be sure about what expenditure would have been avoided; and it is significant that I do not find that the claimant should have been alerted to the danger until the week after 30 July. My views on the items are as follows: 254. The £460 would have been paid anyway, albeit reluctantly. It was paid because it was owed and matters would not have changed that. It is therefore not recoverable from the defendant in this way. 255. The payment to £797.56 to Hackney is receipted. I have no reason to suppose that the application was made materially before 9 September 2010. It would not have been made had the claimant been alerted to the absence of the TR1 and its seriousness. It is therefore recoverable. 256. I accept that £351.09 was paid to Oval Insurance Broking on or before 17 September 2010 as an insurance premium. This payment was arranged on or before 19 August. As 17 September was agreed as the date on which Oval could debit Mr Ikbal’s credit card, it is possible that the making of the arrangement for the payment date itself took place some time after the insurance instruction had been given – it looks as if Mr Ikbal was timing his arrangements for payment to fit in with his credit card payment cycle. I am not prepared to accept that an insurance premium would not have been incurred if, in the week commencing 2 August, the defendant had alerted the claimant to the TR1 problem and its significance. It may well have been incurred before then anyway, and the claimant would have been unlikely to leave his potential interest uninsured; only when it was clearly established that he had been defrauded would it have been logical to cease to insure his potential interest. This item is therefore not recoverable. 257. I accept that £587.50 was paid to GCA (UK) Ltd on 5 October 2010, being fees for design work. The fee was for three design items. The only clue as to the date of this liability being incurred is that one of the items was dated 3 August. It seems likely that work would have been commissioned in any event. This item of damages is therefore not recoverable. 258. £800 is said to have been paid to Falcon Designs Ltd on 7 October 2010 being fees for design work for a planning application for erection of an extension. Although not receipted, I accept that the payment was made. It was made pursuant to an application for payment made on 29 September. It looks likely that this work would not have been commissioned had the defendant alerted the claimant to the TR1 problem and its significance, and in my judgment is recoverable. 259. In both the Wells and Skytek cases the claim is put on the basis that written contracts were made with Wells Build and Skytek on 30 July. That is the date on which I have concluded that the defendant should have questioned the non-arrival of the TR1 but before I consider that they ought to have alerted the claimant, particularly, before they should have warned him that he was at risk if he spent money on the property. Accordingly I do not consider that the burdens of these contracts can be said to have been caused by a breach of duty by the defendant: they would have been acquired anyway. It follows that these items would not be recoverable. 260. It seems that the claimant was put in a position where he had no option but to go into breach of contract because he could not give his contractors access to the property. That would leave the position as being that work had to come to an end and each contractor would be entitled to claim (1) payment for the work done to date and (2) (subject to any mitigation) damages for breach of contract, i.e. the loss of profit to the end of the contract. The agreements to do the work were documented; with the exception of the Wells invoice mentioned below, termination agreements, or discussions about payment, were not. 261. Had I regarded the liabilities under these contracts as caused by the defendant’s breach of duty, it would have been difficult to decide what the evidence justifies that the liabilities were, whether paid or outstanding. 262. There is no doubt that considerable work was done at the property, but when the Phillips children obtained an injunction much remained to be done. 263. The Wells proposal of 30 July was for specified works at a materials and labour cost of £36,000. 264. A printed invoice from “Wells Build” was issued dated 15 January 2011, with a reference to a delevery (sic) date of 16 November 2010 (which coincides with the claimant alerting the defendant to the possession proceedings). The invoice claim was for immediate payment of £26,800 for “abortive works to the above property”. This is said to be a compromise figure for the total payable to Mr Wells, including both the work done and the work cancelled. 265. In the case of Skytek, there is a List of Works, signed on 30 July as a contract document by Mr Ikbal (but not by Skytek) for work to commence on 2 August, with a total price of £64,500. The claimant says he has paid them £19,200, and that at the date of his witness statement he owed them about £30,000, but there is no documentation supporting the payment or the alleged remaining debt of £30,000. 266. It is difficult to know what to make of the very limited material (including in the material the two relevant paragraphs of the claimant’s witness statement), especially given what came to light about the way in which documents were produced for the Court case, but I pay due regard to the fact that I am satisfied that it was logical that substantial work should have been commissioned and started, and that it was. 267. On balance, I would have concluded that £26,800 probably did realistically represent the past and post-termination liability to Wells. 268. For Skytek, who were said to have been more difficult over compromise, I would have accepted that £19,200 was paid, but would not have accepted that £30,000 was shown to be an existing liability reasonably incurred. It may or may not have been, but it is for the claimant to prove that by credible evidence, and he has not satisfied me about it. 269. Of the costs connected with the possession proceedings, firstly I do consider that they were caused by the defendant’s failure to report properly to the claimant. Unless Fernando had successfully fobbed the defendant off with a forged TR1, the defendant should have reported properly and it would quickly have become apparent that there was a fraud. The claimant would have abandoned the site and it would not have become necessary for the Phillips children to take possession proceedings. The payment of £4,581.81 in respect of their costs is admitted. 270. Memery Crystal billed the claimant £4,700, including counsel’s fees, and were paid from monies they had obtained on account. Their billing was based on 12.6 hours at £295 per hour, reducing their own charge from the resulting £3,717 to £3,250. There is a redaction in the narrative before me describing the work. The figures do not appear to me unreasonable: Memery Crystal were new to the matter and had to do a thorough job for a client who appeared to have been defrauded by dishonest solicitors and less than well served by Sterling. Given the reducing of the charge to £3,250 I do not consider it necessary to reduce the damages further to reflect the likelihood that the detail redacted reflects some attention to the role of the defendant. 271. It was submitted on behalf of the defendant that some costs would in all likelihood have been incurred in any event. This is difficult, because if the defendant had been taking proper care of the claimant his first reaction would have been to ask them to tell him what had happened and advise and look after him in the changed circumstances. It might be thought invidious for a solicitor to seek to charge in such circumstances, but in a market in which solicitors offer to undertake conveyancing for the very low fee in this case (£450) one can understand a solicitor feeling entitled to charge for work caused by the fraud of someone else. The claimant, however, could fairly have said that the defendant had not achieved the Agreed Next Steps set out at the time of the retainer, and would have been most reluctant to agree to pay for the consequences of that failure. I consider an allowance of £500 a reasonable reflection of these points. 272. It could be said that a consequence of awarding damages referable to the chance that a forged TR1 would be provided, I should correspondingly discount the other items because of the same chance. Although I regard that as logical, because I have regarded the chance as low and the figure awarded under that head is so impressionistic, I do not propose to do so. I consider my approach to be a practical and realistic one. 273. In these circumstances my calculation of the damages is: Loss of the chance of indemnity £35,000.00 Payment to Borough of Hackney 797.56 Payment to Falcon 800.00 Payment of Phillips’ children’s costs order 4,581.81 Payment to Memery Crystal 4,700.00 Less allowance for possibly unavoidable costs -500.00 Total 45,379.37 Outcome 274. There will therefore be judgment for the claimant for £45,379.37. Subject to any further submissions, there should be simple interest on this amount. Rather than having interest calculated on different items from different dates I propose, subject to such submissions, that interest run from 1 October 2010 and that it run at base rate plus 4 percentage points. (Interest should reflect what someone like the claimant would probably have to pay to borrow during the relevant period. I do not propose to say more than that I am aware that, in the post-Lehman Brothers era, the Commercial Court abandoned the previous starting point of Base Rate plus 1 for commercial cases; that it was recognised in any event that individuals might have to pay much higher rates; and that awards of more than base rate + 4 have been made to claimants who appear to have been of much more financial substance than Mr Ikbal, who was stretched by this transaction.)
JUDGMENT: APPROVED BY THE COURT FOR HANDING DOWN (SUBJECT TO EDITORIAL CORRECTIONS)
MR NICHOLAS DAVIDSON QC (Sitting as a Deputy Judge of the Chancery Division):
Introduction
1. In July 2010 a property fraud at the centre of which was an impostor vendor, certainly assisted by one or more associates, was earned out. Virtually all the relevant events took place in 2010, and references in this judgment to dates without a year being stated are to 2010.
2. The claimant, Mr Shaheed Ikbal, for whom the defendant solicitors Sterling Law (“Sterling”) acted, contracted (as he thought) to buy a property, 121 Brooke Road, London N16 7RJ (“the Property”). Although at one stage there was a possibility that he would obtain mortgage finance, in the event he bought without it, although he borrowed from family sources. It is not a mortgage fraud case.
3. Sterling (for whom Mr Spike Charlwood appeared), would suggest that from the purchaser’s solicitor’s side the transaction proceede
d in a conventional way until, following the supposed completion, a transfer in form TR1 failed to appear from the vendor’s solicitors. The claimant (for whom Mr Peter Dodge appeared) disagrees, submitting among other things that the defendant should have become suspicious of the bona fides of the vendor, and warned their client accordingly, but it is undoubted that the major departure from a conventional course was the non-appearance of the TR1 following the supposed “completion” of the transaction.
4. A firm of solicitors, Fernando & Co. (“Fernando”) signed the contract for the supposed vendor, who was said to be their client. In circumstances described below, the full purchase price, £350,000, was remitted to Fernando (as would be the normal course if the Law Society Code for Completion by Post were being used). The money disappeared. Fernando did not tender even a forged transfer of the property. Fernando had not been acting for the actual owner(s) of the Property. Six and a half weeks later the Law Society intervened in their practice. No money has been forthcoming from Fernando, any insurers, or indeed anyone. Mr Ikbal claims against his own solicitors, Sterling. He makes claims in two categories, breach of trust and breach of (contractual and parallel extra-contractual) duty of care. There is some, but by no means total, overlap between the categories of claim. He claims reconstitution of the trust fund (money paid to the defendant for the purposes of the purchase) by repayment of £315,000, or equitable compensation, and damages.
5. Some of the detail of the saga is still shrouded in mystery.
Published Warnings
6. It is now more than 20 years since the first “Green Card” warning on mortgage fraud was issued. The Practice Note issued dealing with practice as of 15 April 2009 said that it should be read by all solicitors who did conveyancing work involving a mortgage, which was work that the defendant’s Mr Parmar did. At the outset it observed:
¥
1.2 What is the issue?
Criminals will exploit weaknesses in lending and conveyancing systems to gain illegitimate financial advantage from the UK property market. This can be either:
opportunistic action using misrepresentation of income or property value to obtain greater loans than a person is entitled to
organised crime syndicates overvaluing properties, using false identities and failing to make any mortgage payments
…
Courts will assume a high level of knowledge and education on your part. They will often be less willing to accept claims that you were unwittingly involved if you have not applied appropriate due diligence.
7. On 11 October 2010, after the main events in this case, the Law Society issued a practice note about “Property and registration fraud”, which said that it should be read by all solicitors who carry out work involving Land Registry applications. Although it was drawn to my attention, it plays no part in this case because it had not been published when the defendant was doing the relevant work. It is, however, worth recording that the case does in fact arise from a property fraud of a type about which the warning of 11 October 2010 was in due course issued. The case is certainly one of “vulnerable registered owners” (note 2.2.2) and probably a vulnerable property (note 2.3). This is a practical example of a known type of fraud, a purported sale of a property by someone other than the true owner. On this occasion, it is clear that those involved in the fraud included someone in the solicitors who claimed to act for the vendor.
The Property
8. The Property was a house in Hackney, East London.
9. Mr Philip Phillips, who was a chartered surveyor, was registered as proprietor of the freehold interest in that property, with title absolute, under Title NGL338828, on 21 April 1961. On the search obtained on 28 June 2010 his address was shown as 74-76 Stamford Hill, N.16, but of course the document showed that registration had been effected on 21 April 1961.
10. Mr Phillips had died on 22 March 2000. His interest in the property was left to his widow, Rhoda. No change was made on the Land Register before her death, on 27 June 2001. Nor indeed had his Executors, Mr Peter Phillips and Ms Stacey Phillips, obtained Probate in that time. Probate of Mr Phillips’ Estate was granted on 15 April 2002, and then Probate of Mrs Phillips’ Estate was granted to Mr Peter Phillips, Ms Stacey Phillips and Ms Janice Phillips (“the Phillips children”) on 22 April 2002: evidently they, or trusts with which they were connected, were, under Mrs Rhoda Phillips’ Will, to benefit from ownership of the Property. As they put it, with notable understatement, in evidence or argument in possession proceedings mentioned below (0EC02774), “for one reason or another” they did not take steps to register themselves as proprietors of the Property immediately. They did not do so until after the events giving rise to this claim. There is no indication as to why nothing happened about title during the decade between Mr Phillips’ death and the perpetration of the fraud, and very little specific indication as to what, if anything, was happening either at or about the Property during that time, though passing reference to it was made in paragraph 5 of the Particulars of Claim in the possession proceedings mentioned later.
11. Photographs show the Property to be a terraced house. The appearance from the photographs suggests some period of occupation and some neglect. In June 2010 Mr Ikbal obtained a report from GCA Consulting following structural inspection of the property. The inspection had taken place on 2 June. It was recorded that the property was in a poor state of repair and until recently had been inhabited by squatters. It was not weather-tight. It would have been natural for a buyer to want to get work under way as quickly as possible. It would also have been clear that the vendor was not resident there, and the claimant would have known that from his own visits to the Property before purchase.
The claimant
12. Mr Ikbal is 31, and lives in Leicester, as he has done for most of his life. He has close connections with Loughborough, 10 miles north of Leicester, which is where his family established a stationery business in 1987, still operating now, and where he went to school and college and established, with his late brother, another store for the family business.
13. He started at Sheffield Hallam University, but his family had the great misfortune of his brother being killed in a car accident, so the claimant returned to Loughborough and worked in the Loughborough business. When aged about 24 he decided to try his hand in property investment, buying in the space of perhaps 2 years a terraced house in Loughborough in partnership with his mother, a shop with accommodation over in Uttoxeter, a one-bedroom flat in Loughborough, and then a shop with flats in Hackney, in partnership with a cousin, Shameer Latif. He felt that, having been concerned with renovation work at his sister’s property in Leicester, and in redeveloping the Uttoxeter property, he had gained what he described as a vast amount of knowledge in building work and site management.
The defendant, and Mr Parmar
14. Mr Hashok Parmar (who also uses the spelling Parmer) is a solicitor who is now a sole practitioner, practising in Loughborough as Sterling Law Solicitors. At the material times the firm-name Sterling Law was used by a partnership of which Mr Parmar was the senior partner. The person mainly involved in this matter was Mr Parmar; Mrs Kalpana Patel, the Practice Manager, had some involvement. Mrs Patel is no longer with the practice, but Mr Parmar’s evidence was that she could readily have been and be located to be called as a witness. She was not called.
15. Mr Parmar qualified as a solicitor in about 1993, while working in local government. He moved to private practice in 1995, and for the next 9 years worked in family law. In 2004 he transferred to the commercial department of the firm where he was working, and for about four years specialised in “commercial and predominantly residential conveyancing”. In 2008 he joined a Loughborough practice called Parmars Solicitors, which he left in 2009, setting up Sterling in December 2009. He was undertaking some conveyancing work during 2010 although the property market was slack. He agreed that at the time of his matter there was a generally perceived risk of fraud in conveyancing transactions, but he was not familiar with the contents of the Law Society Practice Note on Mortgage Fraud (though he should have been). He personally has come to concentrate on other work and is no longer undertaking conveyancing.
Fernando & Co.
16. There was a firm of solicitors practising under this name. The firm’s address was in Tooting Bec, South London, at 15 Trinity Road, London SW17. The partners listed on the letter head were Rajesh Bhandari and Lingam Tangavellu, though there is reference to the lessee of the firm’s premises having been one H Fernando. This matter was conducted under the reference RT/723/Phillips. On 15 July they sent a handwritten fax which said that it came from Mr Yogesh.
17. The Solicitors Regulation Authority (“SRA”) intervened in Fernando’s practice under Schedule 1 to the Solicitors Act 1974. It is agreed that this happened on 10 September 2010. The precise basis was not stated at trial, but if the Law Society had known what had happened in this case they would have been entitled to intervene on the basis of suspicion (to say the least) of dishonesty (paragraph 1(1)(a) of the Schedule). Although I have not been provided with details of the Powers exercised under Part II of that Schedule, it is common ground that Messrs. Devonshires were the solicitors appointed as the Authority’s agents, and took possession of the available files.
18. Devonshires have found no Fernando file for this transaction. Although it is to be hoped that someone has attempted to trace the flow of funds, no information has been provided in this case from records of Fernando (or their bank) as to the movement of funds into and out of client account. (There is evidence from the defendant of funds being sent from the defendant to Fernando’s client account.)
19. The trial papers include photographs of notices at the office. One gave the contact details for Devonshires. Another showed that the keys for the premises were, by the time of the undated photograph, held by Devonshires. A third notice, dated 2 November, shows that by that date the landlords had effected peaceable re-entry of the premises.
20. It appears to me right to inter that from about 10 September 2010 Femando’s office would have ceased to function: everything points to the intervention being on the basis of dishonesty, and on such interventions it is naturally the aim of the intervention agents to take control immediately. It is unlikely, and I therefore do not believe, that calls to Fernando’s telephone number after 10 September would have been answered at all, either by human or by apparatus. On 16 November Sterling wrote to Fernando that “unfortunately you are not able to take incoming phone calls at present”: clearly the telephone was then out of service; it is probable that the occasion for the telephone ceasing to be in service was either the intervention or the repossession by the landlords, though there is no actual evidence as to which.
21. There has been no evidence from Fernando: there are just the documents to and from them which are to be found on Sterling’s file. There is, however, no suggestion that this is a case (such as some cited below) in which the name of a bona fide firm of solicitors has been hi-jacked by an impostor, and no suggestion that the bank account to which funds were sent by the defendant was other than a Fernando client account. There was a genuine firm of that name operating from the address in question. It appears to be a case of a genuine firm of solicitors in which one or more dishonest people were working.
22. I deal with the case on the footing that on the occasion when completion was due “completion” was handled by an individual at Fernando who was acting dishonestly with the intention that the money provided on behalf of Mr Ikbal should be misappropriated. Apart from anything else, the non-supply of a TR1 is not consistent with the honest conduct of completion under the Postal Code to which reference will be made. (It is much more probable that the non-supply reflects that Fernando did not send one than that they did send one and it went missing in the post or the document exchange.)
23. It is clear also that no partner of the firm has complied with that individual’s obligation under the Solicitors Accounts Rules to restore to client account the money wrongfully withdrawn; neither have the insurers who should have been in place made good the deficiency; Mr Charlwood said that I should not speculate why, but it is not speculation to be aware of the arrangements, set by rules made under statutory powers, for compulsory insurance: if insurance was in place then it would be difficult to see why, having regard to the Minimum Terms applicable to such insurance, the insurers would not be obliged to pay unless they successfully invoked against each partner in the firm the well-known dishonesty exclusion which is invariably to be found in policies which are subject to the Minimum Terms.
The Code for Completion by Post
24. As the authorities (notably Edward Wong Finance Co Ltd v. Johnson, Stokes & Master [1984] A.C. 1296 and Patel v Daybells [2001] EWCA Civ 1229 [2002] P.N.L.R. no. 6), show, for decades the occurrence of completion by the attendance of the buyer’s solicitor at the office of the seller’s solicitor has become increasingly rare. An intermediate possibility is for the buyer’s solicitor to engage a local agent to attend at the office of the seller’s solicitor, but the very common practice is to complete in accordance with the Law Society’s Code for Completion by Post as from time to time in force. (“the Postal Code”) In July 2010 the version in force was that originally issued in 1984, as revised in 1998. As Note 2 explained, its object is to provide solicitors with a convenient means for completion on an agency basis when a representative of the buyer’s solicitor is not attending at the office of the seller’s solicitor (though contracts such as the Standard Conditions of Sale, 4th edition, which applied to this case, specify the seller’s solicitor’s office as the normal place for completion).
25. Provisions relevant for present purposes are the following.
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1. To adopt this code, all the solicitors must expressly agree, preferably in writing, to use it to complete a specific transaction.
2. On completion, the seller’s solicitor acts as the buyer’s solicitor’s agent without any fee or disbursements.
4. The seller’s solicitor undertakes:
(i) to have the seller’s authority to receive the purchase money on completion …
6. The buyer’s solicitor will remit to the seller’s solicitor the sum required to complete, as notified in writing on the seller’s completion statement or otherwise, or in default of notification as shown by the contract. If the funds are remitted by transfer between banks, the seller’s solicitor will instruct the receiving bank to telephone to report immediately the funds have been received. Pending completion, the seller’s solicitor will hold the funds to the buyer’s solicitor’s order.
8. The seller’s solicitor will complete forthwith on receiving the sum specified in paragraph 6, or at a later time agreed with the buyer’s solicitor.
10. The seller’s solicitor undertakes:
(i) immediately completion has taken place to hold to the buyer’s solicitor’s order every item referred to in (iv) of paragraph 5 [deeds etc] and not to exercise a lien over any such item;
(ii) as soon as possible after completion, and in any event on the same day,
? (a) to confirm to the buyer’s solicitor by telephone or fax that completion has taken place; and
? (b) to send written confirmation and, at the risk of the buyer’s solicitor, the items listed in (iv) of paragraph 5 to the buyer’s solicitor by first class post or document exchange.
In this case a fundamental document required under undertaking (ii)(b) was a form TR1, duly executed, from the vendor.
The witnesses
26. The case has been complicated by the fact that the witness evidence of both the claimant and the solicitor involved at the defendant turned out to be, in respects to which I attach much importance, unsatisfactory. Whereas in Santander UK PLC v R.A. Legal Solicitors [2013] EWHC 1380 (QB) there was an allegation, which it was not necessary to determine, that the purchaser as well as the “seller’s” solicitor was dishonest, but all the witnesses were honest and trying to help the Court, in this case there was no such allegation against Mr Ikbal, but the witness evidence had unsatisfactory aspects. I comment on the witnesses before dealing with specific issues of fact.
Mr Ikbal
27. In evaluating his evidence my general impression was at first a favourable one of a straightforward witness who was concentrating well and dealing sensibly with questions. Later he seemed less good at giving direct answers to questions. And in due course the impression of his evidence being straightforward received a sharp jolt.
28. This was not from the cross-examination on his search for finance for the purchase, although that left me conscious that his detailing in evidence of events might not be precise, and that in seeking finance he might not have been careful to see that what was said in his application was strictly truthful (I do not suggest that he was consciously dishonest).
29. A part of the history is that as soon as he was told that his purchase had completed the claimant set about works of improvement to the property, for which he engaged others to work for him. The trial documents contain a substantial number of documents which appear to be regular receipts for payments to a Mr Wells for doing such work. Part way through the series described as receipts from Mr Wells the format changed. Probing from Mr Charlwood established that receipts were not, as they appeared to be, contemporaneous documents, but were in fact manufactured for the purposes of this litigation, rather than regular receipts provided on the occasion of the making of each payment. The claimant said that the procedure was that Mr Wells (who was based in Loughborough) would go to the claimant’s shop in Loughborough, and that the claimant would make a note in his diary and that “they” (Mr Wells operated as Wells Builders) would “sign for what they have [been] paid”. The receipts stopped in April 2012 and that was when, said Mr Ikbal, he went to see Wells Builders to get them to compile receipts. The receipts were not contemporaneous to the dates on them: they were compiled from the “list” Mr Ikbal made each time they came into the shop. The list (or diary) had not been disclosed. So this was evidence of at least one document being kept contemporaneously, from which the claimant and Mr Wells had created at a later date the set of receipts which could be and were produced as apparently contemporaneous documents to the defendant to vouch the payments allegedly made. The document said to contain the record had not been disclosed (I use the word in the technical sense in which the word is used in the Civil Procedure Rules). If such a diary and/or list had existed, it should have been disclosed and would have been inspected. This evidence being given in the morning, and Leicester being on a major railway line and at no great distance from London, I asked if the diary could be brought to Court by the end of that afternoon. Mr Dodge said on instructions that it could not. The words “that afternoon” were not casual: if people will manufacture documents to disclose and produce them as evidence, there is the risk that more will be manufactured if they are needed to bolster the case. Although I was distinctly surprised to be told that no one could be found who would be able to get the document(s) to London that day, I left the matter there. However, documents, said to include (but not be limited to) contemporaneous records of the payments, were brought to Court the following day, and Mr Dodge wanted to introduce them. Mr Charlwood, who had not had an adequate opportunity to consider them in any detail, objected to Mr Dodge’s desire to add them to the evidence. I had an entirely open mind as to what the outcome would be on the evidence about payments if I refused to allow Mr Dodge to add them, and ruled against their admission for reasons given at the time.
30. This episode led me to be very reserved in my approach to the claimant’s credibility. On his own case he was in breach of his obvious obligation to disclose a document evidencing payments which were in issue. Instead of doing that, and perhaps obtaining a statement from Mr Wells, the two of them manufactured a set of documents which gave a false appearance as to when they were created. Such behaviour calls into question the integrity of a claimant’s approach to the litigation. It is of course the case that Mr Wells has had no opportunity to say anything about this; he may have believed that what he was doing was appropriate and helpful and have had no idea that the resulting receipts might be provided to anyone in a way capable of misleading.
Mr Parmar
31. Mr Parmar’s witness statement said, unsurprisingly, that because of the lapse of time he could not, when making the statement in February 2013, recall all the relevant details, but that there were “a number of important facts which I do recall very clearly”. I have considered the likely impact of matters on his mind at the time, and the extent to which I believe him to have a reliable recollection; I also considered the manner in which he gave his evidence, what he said, and the documentary material. He could be somewhat voluble in his answers and I was careful to satisfy myself that I understood correctly the effect of his answers.
32. In the first stage of his cross-examination he came across to me quite naturally, as an ordinarily straightforward witness having to deal with events the best part of three years earlier which would not, on his case, have made a particular impact until he was instructed that possession proceedings were being taken against his buyer client. (One thing that stood out about this case was the aggressive time pressure coming from the vendor’s solicitors; I accept that that did stand out, and Mr Parmar said that time pressure came from Mr Ikbal as well, which it probably did, but I do not see that the case would otherwise have stood out: he told me that his experience included dealing with a considerable number of conveyancing solicitors whose standards were abysmal, and if that was his experience Fernando would not have stood out as worse than others.) In the second stage of his cross-examination there was a marked change, and the impression he gave was of having become deflated, as if he himself had lost confidence in what he was saying. Although the way he gave his evidence impacted to an extent on my confidence level in what he was saying, it did not affect my view of his honesty; it did not give me confidence in the reliability of what he said; indeed, I felt that he became all at sea.
33. My impression of straightforwardness was confirmed when he was asked about the checks recommended to be made by solicitors when encountering solicitors not known to them in a conveyancing transaction, and he freely owned that he did not make such checks on Fernando. Later, when challenged by Mr Dodge that the defendant had done a shabby job (a question which was not directed to any particular time) he said simply that he would be stupid if he didn’t say that it may be a shabby job.
34. Reliability is a different thing.
35. Before verifying orally his witness statement (which of course was verified by the Statement of Truth dated 15 February 2013), Mr Parmar made some careful alterations to it. Important alterations were as follows:
Paragraph 38 as written read:
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“On 26 July 2010 I transferred the sum of £315,000 to Fernando & Co. in the belief that the sale was completing by way of the Postal Code and that Fernando & Co. had undertaken to send the completion documents including the TR1 Form.”
Mr Parmar said in the witness box that this was not correct. He was abroad (he later explained, on holiday) on 26 July 2010 and the transfer was made by Sterling’s Practice Manager, Mrs Patel. By itself this change might not seem particularly significant, but the next change also concerned Mrs Patel.
Paragraph 42 as written read:
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“I did request the TR1 Form by telephone. I made between 4/5 calls.”
Mr Parmar said in the witness box that this was not correct. He said that he made one or two such calls to Fernando and that Mrs Patel also made one or two.
36. Of course such changes before verifying the witness box can be prayed in aid by either side. Among other things, it can rightly be said that the witness has been careful to re-read the witness statement before coming to give evidence, and is being scrupulous to see that mistakes are being corrected, so the Court can see that the witness in the box is doing his very best to give accurate evidence. Equally rightly, it can be said that the witness was not careful either in preparing the witness statement or in reading it before signing the statement of truth. (The second of these episodes was concerned a potentially important point in the case; the first, less so.)
37. Mr Parmar did not seek to alter paragraph 41 before verifying the witness statement in the witness box. This read:
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“I told the Claimant that we had not received the TR1 Form and suggested that we request the return of the funds transferred. The claimant told me to chase the TR1 Form as and when I can but not to request the return of funds or take legal action because he knew the seller and they would send it on. The claimant gave me the clear impression that he had met the seller, he had spoken to him, he knew the estate agent through previous transactions and that the estate agent knew the seller.”
In cross-examination he said that he wished to withdraw the second of these three sentences. I read the paragraph back to him without the second sentence and he confirmed to me that that was how he wished the paragraph to stand.
38. There was an example of inconsistency over time, from the documents. One of the points said by the claimant to be “unusual or suspicious” (a factor in the duty-of-care claim) was that the seller’s address was given by Fernando as that of the Property, which was different from that of the seller as shown in the register of title. Mr Parmar wrote about this on at least two different occasions:
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(a) On 10 October 2011 Memery Crystal (for the claimant) wrote to Sterling, asking for help on questions asked of Memery Crystal by the SRA. Memery Crystal wrote as follows, the italicised passage setting out a question from the SRA:
“4. “Please explain whether any enquiries were made by Sterling Law and yourself” [Memery Crystal] “to verify that Mr Philip Phillips was one and the same person? I note the contract states Mr Phillips address as 121 Brook Road but the office Copy Entry dated 28 June 2010 states Mr Phillips address as 74-76 Stamford Hill, London and the Grant of Probate states that the late Mr Phillips address as 6 South Square London” [sic]
“Please would you let us have your response.”
The response (on 2 November 2011) was
“This point was raised with Fernando as to why their was discrepancy in the office copy and the contract, and they informed us that Mr Phillips had recently moved from 74-76 Stamford Hill, therefore they were using 121 Brooke Road as his correspondence address.” [sic]
(b) In paragraph 15 of this witness statement, Mr Parmar said:
“However, I did ask Fernando & Co. about this and they said that at the time of the sale the seller was living at the address referred to in the register of title in the Land Registry.”
In cross-examination he said that the address in question was 74-76 Stamford Hill.
39. Another example is that when being cross-examined Mr Parmar said that he did notice that in the batch of documents alleged to give rise to suspicion “Brooke” was spelt “Brook” and said “have you missed out e?” – whereas his witness statement said that he did not notice that mistake.
40. Whatever allowance may be claimed for the effect of lapse of time and any stress of giving evidence, either in preparing a witness statement or in the witness box, I do not think that evidence of detail, unsupported by documents, from this witness has much value. The statement that there were a number of facts which were remembered very did not convince me.
41. In my judgment Mr Parmar’s evidence in this case, where unsupported by documents, is unreliable.
42. The question of honesty is directly in issue not only for general credibility purposes but also because the defendant asks for relief under s.61 of the Trustee Act 1925 (“section 61”), it being for a person seeking such relief to prove his honesty for the purposes of that section. When I read the defendant’s letter of 2 November 2011 I had, for reasons I mention later, a real doubt arise as to its honesty and was, from the first, alive to the need to be evaluating Mr Parmar’s honesty; paying heed to the way in which he gave his oral evidence, I concluded that his oral evidence was given honestly.
Possibly missing attendance notes
43. Mr Parmar’s evidence was that he believed that at the time this transaction was taking place the defendant had a computer problem and that as a result his firm did lose a batch of attendance notes; this might explain the absence of documents which might have supported his account of events. The evidence about this problem and the risk of the loss of data relevant to this case was very vague and left me quite unpersuaded that I should suppose it likely that there were attendance notes besides the documents that have actually been produced. If one considers the whole period from 1 July until the claimant changed solicitors after 16 November there is a striking absence of attendance notes where one would expect, if the defendant’s factual case were right, that there would be attendance notes, covering a period when letters to the claimant had survived any computer malfunction. While Mr Parmar believes he was good at making attendance notes, and was certainly better than some conveyancers about this, it seems to me much more likely that the absence of attendance notes is caused either by there being no event to have recorded, or by failure to make a note of that which should realistically have been recorded, than by a note being made which was subsequently lost as a result of a computer problem, and my findings of fact reflect a view that the absence of attendance notes is caused by the absence of there being anything to record.
The course of events to the day of “completion”
44. The evidence about Mr Ikbal becoming interested in buying, and agreeing to buy the property, was explored in cross-examination without leading me to any conclusion that it was materially wrong or that I should draw any conclusion from it which affects the outcome of the case, although it did show that the claimant’s statement contained some errors of detail. The claimant and his cousin Shameer were introduced to the property by someone (Mr Ullah) who he understood to work for a well-known estate agent, and they met at the property someone who was probably a party to the fraud, as he was introduced as the seller’s nephew. The claimant and Shameer were minded to buy the property as a partnership venture. A professional survey was undertaken. Some discussion took place which resulted in the price being reduced to £350,000, a significant reduction from the asking price and below what the claimant thought might have to be paid. The intending purchasers instructed an outer London law practice, Central Law Practice.
The retainer of the defendant
45. In the event Shameer withdrew from the project, apparently having difficulty in raising finance, and the claimant decided to press on alone. On 1 July the claimant authorised the defendant to act for him and to obtain all documents from Central Law Practice.
46. The retainer would, unless the contrary were agreed, carry with it authority for the defendant to conduct the matter in accordance with approved conveyancing practice.
47. There was a substantial engagement letter which the claimant signed. It was captioned “re: 121 Brook Road …”, so the road-name of the property was mis-spelt.
48. The list of Agreed Next Steps which the letter set out included:
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We will take all necessary steps to enable you to acquire legal ownership of the property.
We will … arrange for completion to take place, at which time the purchase price will change hands and you will become the owner of the property and entitled to take possession.
We will ensure that the property is transferred into your name.
It was not argued that the last sentence quoted contained a contractual obligation which was breached.
49. It seems sensible and clear that, any question of deposit apart, monies provided by the buyer to the defendant to pay the purchase price were not to change hands except on “completion”, being the point at which the buyer would become owner of the property in question by delivery of all documents necessary to transfer ownership. The buyer was not being asked to authorise any of his funds moving out of the control of the defendant except in exchange for ownership of the property.
The work under the retainer
50. A draft contract had been prepared during the Central Law Practice retainer. This was sent to the defendant, together with a Property Information Form, a Fittings and Contents Form, and an Additional Property Information Form. The claimant says that the defendant should have considered the contents of these documents unusual or suspicious, an allegation considered later. The defendant did not react to them on that basis. His evidence was that he reacted in some respects, but did not at the time have his suspicions aroused.
51. The real activity on the file began on 13 or 14 July. Fernando wrote on 14 July referring to a telephone conversation on 13 July “with regards to Exchange of Contracts and completion of the matter”. They said they had (aggressive) instructions that a deposit of £10,000 must be paid the next day, with completion on 20 July, on the basis that:
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“… if this matter is not completed on the 20th July 2010 no Notice to Complete will be served on your client or yourselves your client will loose [sic] the deposit £10000 and we will rescind the contract.”
52. On 15 July another letter “with regards to Exchange of Contracts and completion of this matter” said that the details had been changed to £35,000 being paid on 15 July, with completion on 23 July. As before, failure to complete on the completion day was on pain that “your client will loose [sic] the deposit 10% £35000 and the contract to be rescinded.”
53. That day Mr Parmar was bargaining for completion to be on “Friday 24 July 2010” (24 July actually being a Saturday) and for the normal Notice to Complete arrangements, without which Mr Parmar’s instructions were to return the Contract of Sale.
54. The correspondence shows that there was a telephone conversation between solicitors that morning. Then Fernando moved slightly to allowing for a Notice to Complete expiring on 28 July. Sterling recorded that Mr Ikbal felt he was being unduly pressurised, but would be willing to exchange that day on the basis that the deposit would be sent by bank transfer the following day with completion to be on 30 July; failing acceptance of those terms, it was said, Mr Ikbal would withdraw from the transaction.
55. Exchange did not take place that day, but Fernando did supply their client account details.
56. On Friday 16 July Fernando proposed exchange that day, with the deposits being paid by 1pm that day, and completion to be on 23 July; in case of failure by the buyer to complete Notice to Complete could be served by the seller with completion then required on or before 28 July.
57. Exchange of contracts took place by telephone that day and is recorded in both a letter and an attendance note. The deposit of £35,000 was being held in Sterling’s client account and was sent to Fernando. Mr Parmar’s typed note was that:
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“Shaheed new [sic] the man very personally so when he was exchanged Shaheed was sitting at the bank.”
58. On Monday 20 July Sterling sent Fernando the draft TR1 Transfer for approval and Requisitions on title. The letter continued:
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“We look forward to hearing from you on Friday 23 July 2010 when the purchase funds are received in to your client account.”
59. On the same day they sent Mr Ikbal a bill and completion statement. This recorded that they had received the funds for the deposit of £35,000 and for the completion payment of £315,000. Their own charge for their services was £450.
60. On 22 July Fernando sent their signed copy of the contract, together with the Requisitions on title form. Section 4 dealt with “Completion”. This section asks a number of questions, in some cases providing boxes for answers.
61. The first question was “Will completion take place at your office?”, and was answered with a tick in the Yes box.
62. The next relevant words are:
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WARNING: A reply to requisition 4.2 is treated as an undertaking. Great care must be taken when answering this requisition.
63. After that comes 4.2:
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If we wish to complete through the post, please confirm that:
(a) You undertake to adopt the Law Society’s Code for Completion by Post; and
(b) The mortgages and charges listed in reply to 6.1 are those specified for the purpose of paragraph 3 of the Code.
64. Opposite the words “If we wish to complete through the post, please confirm that:” was written in “N/A”.
65. Opposite each of requested confirmations (a) and (b) there was a tick box followed by the pre-printed word “Confirmed”. Each tick box was left blank.
66. I agree with Mr Dodge that the only realistic interpretation of this section is that the person who had entered N/A was indicating that completion would not be through the post.
67. On Friday 23 July (taking, as Mr Dodge put it, their [documentary] bow) Fernando wrote:
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“Please confirm whether completion is taking place today”.
68. I accept that on 26 July Mrs Patel told the claimant that the purchase had completed. That would have been her understanding derived from the necessary, if untruthful, telephone report from Fernando.
69. In none of the material mentioned is there express reference to the use of the Postal Code. Apart from the absence of the writing to be expected if the Code were used, the “completion” was conducted as if under the Code. An important issue was whether the use of the Code was expressly agreed.
Was the use of the Code for Completion by Post expressly agreed?
70. As indicated, no written agreement to use the Code was made. There is no written record of an express oral agreement to use it.
71. If the Code was to be used, it was plainly desirable that agreement to use the Code should be either made in writing, or, having been made orally, recorded in writing in an exchange between the solicitors. The Code allowed for the agreement to use it being made orally (the less preferable method of agreement). While one would expect a competent solicitor to make at least some documentary record (e.g. mark on a check list) of the fact of oral agreement, it was not actually mandatory to do so. One may contrast the final paragraph of the accompanying notes, which specified that any variation in the code must be agreed in writing before the completion date.
72. It was asserted in pre-trial correspondence and at trial that the use of the Code was agreed by telephone. As indicated, I entirely accept that it was open to the transaction solicitors to agree in this way. But did they?
73. As a matter of context, this was a transaction for which postal completion would have been the obviously convenient method. The solicitors’ offices were a substantial way apart in both distance and time, so physical attendance by Sterling would be a wasteful use of resources unless actually necessary, and a cost to someone. There is also the more minor consideration that electronic transfer of funds would be more convenient than obtaining physical delivery of a banker’s draft.
74. However, as Mr Dodge pointed out, the answers given in the Requisitions were unambiguously looking to completion by personal attendance: the opening words of 4.2 were answered “N/A”, and then undertaking 4.2(a), which would have been required for use of the Code, was not confirmed to be given. Mr Dodge relies on the absence of record of an express agreement to use Postal Completion as strongly indicating that no such agreement was made.
75. Mr Parmar’s say-so that he had the required conversation was a point at which his evidence was inconsistent as to the circumstance leading to the telephone call which he (consistently) said occurred. In his witness statement at paragraph 37 he set out what he said was his understanding of the answer to 4.2; in cross-examination he said that in fact 4.2 did not make any sense to him. Either way, he said that he called Fernando.
76. To take the events in order: the deposit was paid by inter-bank transfer, for which Fernando had supplied Sterling with their client account details, so the defendant already had the details which their bank would need.
77. Mr Parmar evidently assumed that postal completion would be what was used: when sending the Requisitions on 20 July he referred to the (balance of the) purchase monies being received into Fernando’s client account on 23 July, which was the contractual completion date: Mr Dodge is right to say that the basis on which the money would be sent to client account is not clear, if by that he means not clear from the face of the letter; the letter is, however, consistent with an assumption that that is what would be done, as is the completion statement between Sterling and the claimant which included a Telegraphic Transfer fee.
78. The assumption would of course be consistent with there having been an unrecorded express agreement to use the Postal Code by then. But there is no suggestion that there had been a conversation about using the Postal Code before then.
79. The Requisitions with their surprising answer to 4.2 were faxed back on 22 July.
80. By this time a matter of context is that the due date for completion was the following day. Nothing had happened which would suggest expectation of, or readiness for, completion in person (there is nothing to indicate any notion that attendance by someone from Sterling or an agent other than Fernando would be occurring, and no thought of getting a banker’s draft; and it was clear from Mr Parmar’s evidence that completion of a transaction otherwise than post would be abnormal for him and that he was unaware of such a suggestion in this case). Nor did anything suggesting such an expectation occur after receipt by the defendant of the answers to the Requisitions.
81. The exchange of letters on 23 July was clearly written on both sides on the assumption of postal completion. There is no express record of an agreement having been expressly made in the intervening time, or of any undertaking being expressly given.
82. Mr Parmar’s witness statement evidence is, firstly, that he read the answer to Requisition 4.2, reading “N/A” as “not applicable” and interpreting that as meaning that an answer was not required to Requisition 4.2(b) as there were no mortgages or charges secured against the Property. That is not a sensible reading of the document as such. My assessment of him is that he would have read the answers to the Requisitions, but not necessarily with great care. It seems to me likely that he had a strong assumption that postal completion would be used and, to the extent that he really applied his mind to the document, he interpreted the answer in the context of that strong assumption, looking for a meaning which fitted his preconception. My judgment is that he did see that there were said to be no mortgages or charges (as indicated in answer 6.1, to which there is cross-reference) and left the answer to 4.2 on that basis.
83. His evidence continues that he spoke with Mr Bhandari and agreed the use of the Postal Code. He added that he called him because he personally would be going on holiday on Monday 26 July, explaining in cross-examination that the point about that was that necessarily he could not attend a personal completion on that date.
84. Apart from the inconsistency of what was said about Mr Parmar’s reaction to the Requisition answers, this is all plausible. That this telephone agreement was made and that no note of it appears anywhere is not implausible, if one allows for the obvious possibility that a conveyancer was being slapdash, or, possibly, distracted at the moment he would otherwise have made the note recording the agreement and undertaking. But if one is allowing for the possibility of slapdash work, then I would allow also for the possibility of being slapdash not only in recording but in troubling to do things in the right way in the first place. It is perfectly plausible that someone who was less than rigorous in the technique of the work would simply assume that postal completion was going to be used and not go through what he might (unwisely) regard as the unnecessary formality of achieving an express agreement. The witness statement contains no suggestion that Mr Parmar thought that Fernando were suggesting personal completion, and no puzzlement about the answer to the Requisitions. An interpretation of the reference to the holiday is that if a conversation took place it was not because Mr Parmar wanted to make the express agreement to use the Code but because he wanted to mention that he would himself be away that day so that the seller’s solicitor would know to whom at Sterling to report completion.
85. I find that the use of the Postal Code was not expressly agreed. This is not a case of meticulous conveyancing. It is a case of apparently routine work being done at a low price in a firm whose handling of this matter was on any view at times not meticulous (the post-completion history shows that). I do not think that it mattered to Mr Parmar whether there was express agreement to use the Code or not: its use was routine. I do however consider that the defendant assumed that it was implicit that the Postal Code would be used and likewise assumed that both solicitors were working on the basis that it was treated as being used.
Post-“completion”: Fernando
86. There is no actual evidence of the date of misappropriation. What is clear is that this was not an opportunistic theft by someone at Fernando of some money observed to be held in client account pending payment to the client. This was a pre-planned fraud with an insider at Fernando involved. The object of getting the money in to Fernando’s client account was to get it out into the hands of the fraudsters. As a matter of logic, I would expect fraudsters to get the money out of client account and into their pockets just as fast as possible, not least to defeat any attempt to get the money back when the fraud was discovered. That view is fortified by the time pressure displayed in the correspondence from Fernando in the run up to exchange of “contracts” and “completion”. It has not been dispelled by noting the timing in a case, considered later, in which information was available about movements from the dishonest solicitors’ client account, Santander UK plc v. R.A. Legal Solicitors [2013] EWHC 1380 (QB) at paragraph 27. (I mentioned to counsel that I have seen in other cases documents showing the movement of funds fraudulently obtained into solicitors’ client accounts: I have ignored what I have seen on such occasions.)
Post-“completion”: the defendant
87. In the ordinary way following a postal completion, one of the things that should have happened was that Sterling should have received a duly executed TR1. The vendor’s solicitors must have it to complete and are obliged to despatch it on the day of completion, and in the ordinary course of post/document exchange it should be received by the buyer’s solicitors on the next, or very soon after the next, business day.
88. Completion was supposed to have occurred on Monday 26 July, so the executed TR1 should have arrived on 27 or 28 July. By Friday 30 July it was already significantly overdue.
89. On 30 July (when Mr Parmar was on holiday) Sterling wrote to Mr Ikbal requiring payment of the balance outstanding of £11,266.38 and explaining the importance of payment. One of the matters mentioned was:
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“Also without receipt of the H M Land Registry registration fee we are unable to register you as the owner of the property.”
90. The absence of the TR1, also a necessity for registration, was not mentioned. While it might not be mentioned in a letter to the client at that stage, this would certainly be a time to chase the matter up, being the fourth business day after “completion”. There is no record of any enquiry about the non-appearance of the TR1 until a letter in November, mentioned below.
91. On 27 August Sterling wrote what is in form another letter to Mr Ikbal, seeking payment of £486. It is not in substance a letter: it is Bill of Costs prefaced “Dear Mr Ikbal” and ending “Yours faithfully.” It made no reference to any matter other than the request for payment of that sum, but, given that this was just a Bill of Costs I see no significance in the absence of such reference.
92. On 15 September Sterling wrote what was not a routine account chase. It began “Dear Shaheed”, provided a further invoice, and was sent by Mr Parmar in person, requesting funds “to conclude this matter”. This did not mention any question of a problem over receipt of necessary documents. If the defendant was aware that the TR1 had not been received, this was an obvious occasion to report it and such a report should have been made.
93. A further letter in the “Dear Shaheed” / “Yours sincerely, Hashok Parmar” style was written on 14 October. So was one on 11 November, and on that day there is an attendance note of a call to Mr Ikbal’s mobile telephone voicemail.
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“Call to Shaheed to inform him the up-to-date completion statement is on its way to him in the post and that there is an extra £300.00 outstanding on his account.”
94. There is no hint that there might be a problem, or even a request to call Mr Parmar so that a matter could be mentioned then.
95. The Phillips children, meanwhile, had discovered that someone had started work at their property, had taken steps to register their title, and to start possession proceedings.
96. Their application to register was made on 27 September.
97. Possession proceedings were started against Persons Unknown, by a claim form issued on 19 October. Mr Ikbal became aware of the proceedings and instructed Sterling in that matter. Mr Parmar then wrote to the Phillips children’s solicitors (Manuel Swaden) on 16 November. (The letter was slightly inaccurate in saying that completion took place on 23 July: the date of the supposed completion was 26 July. Nothing turns on that inaccuracy.) The letter did contain the first reference in the documents to the transfer since 26 July:
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“Currently we are waiting for the Transfer from Fernando Solicitors.”
98. The same day Sterling wrote to Fernando:
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“We … write to inform you that we have not yet received the transfer from yourselves to complete this matter. Please forward the same to us as a matter of urgency to enable us to bring this matter to a conclusion.
“We would like to inform you that we have now received a claim form for possession of the property, a copy of which is enclosed herewith; perhaps you can shed some light on this. We have tried to contact you regarding the same, but unfortunately you are not able to take incoming phone calls at present.
“This matter needs to be resolved urgently.”
99. The letter does not suggest that Sterling had previously informed Fernando that the transfer had not been received. It does not suggest that they had tried to contact Fernando about that previously. It does not suggest that there had been previous attempts at telephone calls, or that anyone had encountered difficulty with telephone calls to Fernando before. It contains no protest about Fernando’s behaviour. One might expect a (strong) protest if there had been previous chasing; on a first notification of non-arrival of a document sent by post or document exchange there would not be a basis for a protest.
100. The letter was first sent by fax, but a note records that “fax didn’t work. called tel no. also & it didn’t work either?? sent via post only.” The attempt at contact had run up against the fact of the intervention, which had taken place two months earlier.
101. It is the defendant’s case, and Mr Parmar’s evidence, that there had been about two calls to Fernando from Mr Parmar, and about two from Mrs Patel. It was also the defendant’s case that the claimant was told that “nothing had been received from Fernando & Co.” and told the defendant not to take further action at that time: this was the subject of paragraph 41 of Mr Parmar’s witness statement which I have mentioned above.
102. The material leads me to the following conclusions.
103. First, even were I to accept Mr Parmar’s evidence about this, which I do not, this was a wholly inadequate way of dealing with matters post-completion. Not later than 30 July the non-appearance of the TR1 should have been raised; the fact of any communication should have been recorded; and rapidly after 30 July the matter should have been chased vigorously by telephone and in writing. If a suspicion arose that Fernando had not been in possession of a duly executed TR1 at the time of the supposed completion a solicitor would have had to report to the SRA and to the client. A failure to despatch it immediately would be a significant breach of the Postal Code, only remedied satisfactorily by the arrival of the document. My view of this is much stronger than the limited admission by the defendant that it should have chased the TR1 more forcefully.
104. Second is the factual conclusion. I do not accept that any attempt was made to enquire about the whereabouts of the TR1, or otherwise to communicate with Fernando about it, before 16 November. All the indications from the absence of documents before that date, the absence of any note of reporting the problem to the claimant, and from the documents on that date, suggest that no attempt was made, and in particular that nothing had been done in the period of more than two months since the intervention. (Nothing has suggested an unfulfilled telephone call to Fernando in the period of more than 9 weeks between the intervention and 16 November.)
105. I refer also to a matter which gave me concern. I have referred earlier to the exchange of correspondence between Messrs. Memery Crystal, for the claimant, and Sterling when the SRA was looking to Memery Crystal for information. Another matter raised by the SRA with Memery Crystal, and therefore by Memery Crystal with Sterling, was what, if any, enquiry had been made of Fernando as to the whereabouts of the TR1. Sterling’s reply to this was:
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“Fernando were chased by telephone to provide the TR1. Their response was that they were waiting for their client to sign the document and return it back to them. Upon receiving the same they will forward to us.”
106. This astonishing statement was not the subject of scrutiny in cross-examination of Mr Parmar. Mr Parmar accepted, when I asked him, that if the statement set out in the letter had been made to a conveyancing solicitor when the Postal Code had been used, alarm bells would have been ringing deafeningly. I recognise it as possible that this was a statement made by Sterling in the letter in good faith on the basis of that account of a telephone call having been given by Mrs Patel, and that she might not have realised the significance of what she had been told and might have failed to tell Mr Parmar, but that underlines how unfortunate it was that Mr Parmar’s witness statement mis-stated who made telephone calls, would reflect poorly on a person who the defendant chose not to call and could not therefore deal with any criticism, and would show the danger of leaving points of detail to unqualified staff who did not know enough to identify when something was seriously amiss. (It is actually possible that the non-recognition of the absence of the TR1 and the problem was caused by post-completion “formalities” being left to insufficiently trained staff, but it is not the defendant’s case that Mr Parmar was unaware of the absence of the TR1.) The defendant’s case that Fernando were chased by telephone between 30 July and 16 November has no credibility.
107. I also do not accept that the claimant was provided with any information that there was any problem.
Post-“completion”: the claimant
108. I accept that Mr Ikbal was told by Mrs Patel on 26 July that completion had taken place; that he collected the keys from Mr Ullah, who had introduced him to the Property, and that shortly after he began an extensive works programme.
109. It is the claimant’s case that he incurred expenditure and liabilities totalling £81,856.15 on his abortive refurbishment project. I shall consider the detail of the expenditure claim later.
110. What happened is only briefly described in paragraphs 39 and 40 of the claimant’s witness statement. I am clear that significant works were planned, and there is no doubt that work started and was in progress, with scaffolding up, when the Phillips children learned that something was happening.
111. Mr Ikbal only became aware that his ownership of the Property was in doubt when he learned of the possession proceedings in early November. He was at that time abroad on a pilgrimage. He contacted his cousin Shameer, and the defendant, and came back to England. He lost confidence in the defendant, and his eventual choice of solicitors was Memery Crystal, who have acted for him in these matters since then.
The claim by the Phillips children
112. It is not clear exactly when the Phillips children became aware that someone was doing something at the property. Mr Peter Phillips consulted solicitors with a view to taking action, and was advised that he and his sisters should take action to have themselves registered as legal owners of the Property. Application was made for registration on 27 September, and registration took place on 30 September. (Interestingly, the value stated as at 27 September was £146,000. There is no independent evidence of value in the case).
113. The Phillips children issued proceedings in the Clerkenwell & Shoreditch County Court on 19 October 2010, against persons unknown. In support a witness statement dated 18 November 2010 was made by Mr Peter Phillips. The eventual upshot was that Mr Ikbal was joined as first defendant; he did not defend the proceedings; a possession order was made against him and persons unknown on 21 December 2010, and he was ordered to (and did) pay costs assessed at £4,581.80.
The trust-based claim
114. When Sterling received the £35,000 from Mr Ikbal it was held by them as trustee for him. When they paid it to Fernando it was an authorised payment by Mr Ikbal to be held by Fernando as a deposit under the contract and not to the order of Mr Ikbal or his solicitors. No breach of trust is alleged to have been committed by the defendant. The breach of trust claim concerns the balance of £315,000.
115. It is trite to say that each case will depend on its own facts and on the issues which the parties raise before the Court. However, in cases where a lender or buyer claims from his solicitor on the basis of an alleged breach of trust, and seeks an equitable remedy in an amount equal to the sum which the claimant provided to the defendant solicitor to enable a transaction to proceed, the cases appear to me, to raise the questions under the headings (1) whether there has been a breach of trust (2) if so whether the claimant is entitled to the sum claimed or to some lesser sum subject to (3) any application by the defendant for relief under section 61 of the Trustee Act. Within (2) questions may be raised as to the significance of events which have happened between the time of the breach of trust and the time of the judgment, and as to the significance of any argument not about what did happen but that the same loss would have occurred if the defendant had not acted in breach of trust. I regard question (2) as less straightforward than the careful but opposed submissions of each counsel would suggest.
Breach of trust
116. When Sterling received £315,000 into client account from Mr Ikbal it was held by Sterling on trust for Mr Ikbal, and they had Mr Ikbal’s authority to pay it to Fernando, at an appropriate time, for the purpose of Mr Ikbal’s purchase of the Property. They did not have authority for it to “change hands” otherwise than in exchange for documents giving Mr Ikbal ownership of the property. Use of the Postal Code was only consistent with Sterling’s statement of Agreed Next Steps if funds remitted to the solicitors for the supposed seller remained in Sterling’s grasp until exchange for those documents.
117. Mr Charlwood accepts that if the use of the Postal Code had not been expressly agreed, then (1) the payment by Sterling to Fernando was unauthorised and (2) it was a breach of trust. On my finding as to the absence of the express agreement there was a breach of trust at the time of the funds being sent to Fernando. This breach of trust is expressly alleged in paragraph 45 of the Particulars of Claim.
118. Mr Charlwood submitted that no other relevant breach of trust was alleged in the Particulars of Claim. (There is an allegation in paragraph 46 as to a payment of £460 from client account being a breach of trust. That payment appears to be a valid payment in respect of the Defendant’s bill, and I say no more about it.) Mr Charlwood submitted in particular that there was no allegation of a further breach of the trust on which the funds had been provided to the defendant (as distinct from breach of trust by Fernando), when the funds were appropriated by Fernando by purporting to “complete” without the necessary documents being provided in exchange for the funds, and that it was not open to the claimant to rely on anything other than the payment to Fernando as being a breach of trust. On one view it is possible that this point does not matter, but, given what I need to say on the arguments about breach of trust and the legal consequence, I shall explain why I reject Mr Charlwood’s submission.
119. I accept that there is no allegation in language comparable to paragraph 45 of the Particulars of Claim that there was any breach of trust on any occasion other than that of the transfer of funds to Fernando. However, in paragraph 47, the assertion is made that the defendant is liable to reconstitute the (£315,000) trust fund and to repay on demand. The paragraph continues:
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“The Transaction was neither ever completed nor capable of being completed and, accordingly, the Defendant’s liability to reconstitute the trust fund is absolute.”
The absence of completion and the incapability of completion are alleged as material matters justifying the remedy claimed. It is very artificial to say that the disappearance of the trust money on the occasion of “completion”, without the necessary documents being provided, can be relied upon (as Mr Charlwood would say, unsuccessfully), as justifying the type of remedy but not as justifying the provision of any remedy. There was a suggestion that for some reason, which possibly for strategic reasons was not explained to me, the shape of the case might have been different if the appropriation of funds by Fernando (by their removal, or the statement that “completion” had occurred) had expressly been alleged as an occasion of breach of trust; I was not told, and cannot see, why that should be so, even though my interpretation of the Particulars of Claim allows for the possibility of liability in the event that I had held that the use of the Postal Code was agreed. There was no application by Mr Dodge to amend. My view of this point is such that if there had been such an application it is likely that I would have acceded to it.
120. I consider it to be correct on the authorities to which I am about to refer to conclude that there was a breach of trust by the defendant when the monies were appropriated by Fernando. If, which is not the case here, one needs to be specific about the time, that would appear to me to be the earlier of the removal of funds from client account and the making of the statement that completion had occurred.
121. I also consider it to be correct to say that the trust on which the defendant received the £315,000 could only be discharged by genuine completion or by the return of that sum.
Is the claimant entitled to the sum claimed, being the amount paid away in breach of trust?
122. Mr Charlwood argues strongly that Mr Ikbal is not entitled to any remedy in respect of this. This is not because of any event which has occurred between then and trial. It is because he says that the loss would have occurred even if the defendant had not acted in breach of trust but had acted as it should have acted. The (relevant) cause of the loss was, he submits, the misappropriation at Fernando, and the funds would have reached Fernando and been misappropriated even if the defendant had acted in all respects correctly.
123. His secondary case is that the defendant should in any event be relieved of any liability, under section 61, which is a matter to be addressed separately.
The hypothetical scenario
124. It is of course true that the question of the method of completion was expressly addressed by the parties in the Requisition form and the answers to it. It would therefore seem odd to say that if things had been done properly, the question of the method of completion would have been discussed between the solicitors, with a different outcome. I nevertheless consider that if the solicitors had addressed their minds properly to the question of the method of completion in the way which the Postal Code intends, it would have been expressly agreed that the Postal Code would be used. This is because (1) Sterling and Fernando both proceeded as if they were using the Postal Code; (2) it would have suited Sterling to agree to do so; (3) it would very much have suited any fraudster at Fernando to do so. If either solicitor had said on the telephone in any of the conversations whose occurrence is mentioned in the correspondence, “Are we agreeing that we should use the Postal Code for completion?” the other would have said “Yes”.
125. In my judgment Fernando would therefore have got the money into their client account, and there is no reason why it would not have been misappropriated. The outcome would have been the same.
To what, if any, remedy, is the claimant entitled, section 61 apart?
126. I do not consider that this case can be solved by what would be the happier course of being able to cite just a particular dictum from one of the authorities. There are four recent decisions, three of them from the Court of Appeal, with differing fact-situations and with different conclusions both on the extent of the remedy applicable to the particular case and on the granting of relief under section 61. They are all in the line from Target Holdings Ltd v. Redferns [1996] 1 A.C.421. My task is to apply the principles of those cases. In Lloyds TSB Bank plc v Markandan & Uddin [2012] EWCA Civ 65 [2012] 2 All E.R. 884 the claimant recovered the full amount which had been entrusted to the solicitors, who did not obtain relief under section 61. In Nationwide Building Society v Davisons [2012] EWCA Civ 1626 [2013] P.N.L.R. no. 12, the claimant recovered at trial the full amount which had been entrusted to the solicitors, but the solicitors’ appeal succeeded in obtaining relief under section 61. In AIB Group (UK) plc v Mark Redler & Co, [2013] EWCA Civ 45 [2013] P.N.L.R. no. 19 the claimant’s claim to recover the full amount entrusted to the solicitors failed, partial recovery being allowed and the solicitors not seeking relief from it. In Santander UK plc v. R.A. Legal Solicitors [2013] EWHC 1380 (QB) [2013] P.N.L.R. no. 24 the claimant recovered nothing, relief being granted.
127. Mr Dodge’s essential proposition is that the fact of the breach of trust entitles the claimant to £315,000, and that nothing takes the case into the category, familiar from the Target decision, in which the Court looks to loss otherwise than to the immediate loss of the monies. Mr Charlwood’s essential proposition is to the contrary: the claimant must, and in this case cannot, prove causation (shorthand for, that he would not have suffered the loss if there had been no breach of trust by the defendant); he is therefore not entitled to reconstitution of the trust fund. I consider that this dispute is resolved in the claimant’s favour by the authorities, as I seek to show.
128. In Lloyds TSB Bank plc v. Markandan & Uddin [2012] EWCA Civ 65 [2012] 2 All E R 884, as in this case, the fraud involved the supposed sale of a property by someone who fraudulently purported to be its owner. Markandan & Uddin, acting for the lender, innocently remitted the lender’s funds to bogus “solicitors”, the fraudsters having created the false appearance of being a London branch of a genuine firm of solicitors which had no true London branch. The use of the Postal Code had been agreed. The fraudsters did not send Markandan & Uddin any documents which the Postal Code required to be sent immediately after completion.
129. The trial was only of preliminary issues. One of them was described by the Court of Appeal as being, if there had been a breach of trust by the solicitors and the solicitors were not entitled to certain defences, What was the measure of the claimant’s loss? The outcome of those issues was a judgment for the lender for the full amount of its advance, £742,500, with interest. The decision was upheld. The appeal was confined to two points: it was argued that the Judge was wrong to have concluded that the solicitors had committed a breach of trust, and wrong to find that, as a matter of causation, their breach of trust caused any loss to the claimant.
130. In supplemental submissions requested by me Mr Charlwood urged that while Rimer L.J. referred to the claimant seeking “repayment” of the money / “reconstitution” of the trust fund, the point was considered at first instance as being about what was “recoverable loss”; the issue of remedy was not before the Court of Appeal. While not in any way detracting from the importance of being accurate with words and concepts, and I hope that I was not inaccurate in making my request, there were causation arguments in the Court of Appeal and it is necessary to see what they were and what the Court said about them. The case may not have been about the description of a remedy, but was very much about whether the claimant was entitled to a sum matching the amount of its money which had been paid away, or a lesser (as the defendant argued, no) sum.
131. Rimer L.J. (with whose judgment Mummery L.J. and Sir Mark Potter agreed) dealt with that topic from paragraph 55, but I need to refer to that part of the judgment which deals with the breach of trust.
132. It was not disputed that Markandan & Uddin held it on trust “until completion” (paragraph 37). They were however authorised by their instructions to “release” the money for the purpose of completing the purchase, and upon such release, the trust would come to an end and [the lender’s] right to recall the money would cease. Rimer L.J. said that:
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“If what happened on 4 September was ‘completion’ of the purchase then … [the lender] would have no claim against [Markandan & Uddin] for breach of trust in paying away the loan money …”,
and examined the question whether or not ‘completion’ had occurred. He explained what ‘completion’ in a typical domestic sale and purchase of a property means, summarising:
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“It is this exchange of money and documents that is normally referred to as completion”,
and then rejecting the submission of counsel for the lender that, for the purposes of the Council of Mortgage Lenders Handbook in its applicable form, completion only took place, in registered conveyancing, on registration.
133. Clause 10.3.4 of that Handbook read:
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“You must hold the loan on trust for us until completion. If completion is delayed, you must return it to us when and how we tell you (see part 2) …”
At paragraph 46 of the judgment Rimer L.J. held that
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“… ‘completion’ in cl. 10.3.4 did not refer to the successive moments when the transfer and charge were respectively registered. It referred to the prior date when conventional completion occurred. M&U were authorised by C&G to release the loan money to enable such completion to take place. The trust was only destined to subsist until such time as it did.”
“It” refers to completion, not to the “release” of the money by M&U, to whom Rimer L.J. referred in the plural “they” rather than the singular “it” which might be used when referring to “a firm”.
At paragraph 47 he continued:
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“In the present case, M&U claim that such completion took place on 4 September. The real question is whether or not they are right about that. If they are, they would have released the loan money for the purposes of such completion and such release would not have been a breach of trust.”
On the facts, there was no completion, and, obiter, it was held that even if forged documents had been tendered on the occasion of the purported “completion” there would have been no completion properly understood, and the parting with the loan money would still have been a breach of trust by the defendant. It is clear that the key question was whether genuine completion had occurred. (If “release” means (as I understand it to) the moment of authorisation being given for the solicitors in whose account the money is at the time use it to effect completion, or some step in the process prior to the actual moment of completion, the key question in a case where the trust is to hold the money until completion is whether genuine completion occurs.)
134. The causation points were then considered.
135. The first submission, based on assertions that the outcome was materially, if not exclusively, the lender’s fault, is discussed in paragraphs 55 to 59, and, although examined from a number of viewpoints, found no favour.
136. A second submission existed and was addressed. It was not developed orally by counsel but was expressly considered in paragraphs 63 and 64 of the judgment. This submission was that the causation test for breach of trust purposes was the ‘but for’ test, for which reliance was placed on Lord Browne-Wilkinson saying in Target Holdings Ltd v. Redferns [1996] A.C. 421 at 436C:
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‘the basic equitable principle applicable to breach of trust is that the beneficiary is entitled to be compensated for any loss he would have suffered but for the breach.’
137. This is the submission which Mr Charlwood makes.
138. What was submitted to the Court of Appeal was that had “completion” taken place by an exchange of money for forged documents, the loss would still have happened. Rimer L.J. said:
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“[The submission] amounts simply to the suggestion that, in different circumstances, the purported contract might have been purportedly completed in a different way. For reasons I have given, I consider that such an alternative purported completion would also have involved the payment away of the loan money in breach of trust, although as mentioned at [51] above, the measure of loss suffered by C&G might perhaps have been different depending upon what thereafter happened. I consider, however, that the speculative possibility that a purported ‘completion’ by way of an exchange of money for forged documents might in certain circumstances have yielded either no, or only a lesser, loss to C&G provides no exculpatory answer to the claim for full restitution to which C&G was entitled for the breach of trust that actually happened.”
The reference to paragraph 51 is to the possibility that following receipt of a forged transfer the purchaser and lender might have achieved registration at the Land Registry.
139. While the particular submission was not developed orally, the Court of Appeal considered that the remedy for the money being paid away in breach of trust was full restitution, and provided no encouragement to the argument that if the fraudsters would have succeeded by another route there should not be such restitution.
140. I understand this decision to be authority, subject to any material difference in the instructions in a given case, for the proposition that if the buyer’s solicitor remits funds in breach of trust to those purporting to act for the seller for the purposes of completion under the Postal Code, and the funds disappear on what should have been the occasion of completion but is not completion because no genuine documents of title are provided, then there is a valid claim by the provider of the funds (lender or buyer as the case may be) for full restitution, or if one prefers the expression, for the full amount which had been remitted in breach of trust. There is no support for the proposition that the fact that the loss would have happened anyway deprives the claimant of the right to full recovery of the sum paid away. Such cases are also, often crucially, subject to section 61, which will afford relief to many solicitors who work conscientiously but themselves fall victim to the fraudsters.
141. Mr Charlwood submitted that Markandan is no authority for the proposition that theft by or involving Fernando is something for which Sterling are liable (and that under section 23 of the Trustee Act 2000 a trustee is not generally liable for the default of an agent). I agree that in those words it is not authority for that proposition. But the different proposition is that Sterling are accountable for the money entrusted to them by the claimant; that they must either show that they are discharged from that trust by completion, or return the money (or its equivalent).
142. Markandan was considered in Nationwide Building Society v Davisons [2012] EWCA Civ 1626 [2013] P.N.L.R. no. 12, in which the fact-situation was different, though again it was a Postal Code case. This time an impostor passed himself off using the name of a genuine solicitor and firm of solicitors but an address which was not an office of that firm. He had contrived to have that address publicised in ways such that if Davisons checked the existence of the firm and the address being used for it, which they did, the checks would satisfy them of the existence of the solicitor and of the firm, and that it practised from the address in question. Again this was a case to do with Council of Mortgage Lenders terms, and Davisons were to hold the money on trust until “completion”. The money went to the bogus firm and disappeared. The impostor was not acting for the actual owner of the property.
143. Davisons’ first submission to the Court of Appeal was that they had not been in breach of trust. They had carried out the enquiries required by paragraph A3.2 of the CML Handbook to verify the details of the “vendor’s” “solicitor”, and this, they argued, conferred on them the authority of the lender to pay the purchase money to the practice whose existence they had verified so as to discharge Davisons from the trust imposed by paragraph 10.3.4 of the Handbook, to hold the money on trust until “completion”. This submission was rejected. The trust, it was held, could only be discharged by completion of the purchase or the return of the money to the lender. Davisons did, however, obtain relief under section 61. The causation point arising in this case did not arise for decision there.
144. Both these cases are different from Mr Ikbal’s case, because Sterling were dealing with a genuine firm of solicitors. Although completion did not take place, and Fernando were not acting for the owner of the property, when Fernando received the money they were, whether the use of the Postal Code or not, under an obligation to hold it to Sterling’s order (confirmed by paragraph 41 of Santander UK plc v. R.A. Legal Solicitors [2013] EWHC 1380 (QB)). I do not see that that makes a material difference, on the basis that if the money is to be held to the buyer’s solicitor’s order until completion, the trust on which the buyer’s solicitor holds the money can still only be discharged by completion of the purchase or the return of the money to the provider.
145. The third of the Court of Appeal cases is AIB Group (UK) plc v Mark Redler & Co. [2013] EWCA Civ 45, which did not feature either dishonest solicitors or bogus “solicitors”. The defendant was to act for the claimant lender in connection with a remortgage of property. The lender required a first legal mortgage over the relevant property. The defendant failed to obtain a proper redemption statement from the existing lender (Barclays). In the honest belief that it was acting with the right figures, the defendant applied the money it had received from the claimant lender by (1) paying £1,235,785.07 to Barclays and (2) paying the balance to the borrowers. The result was that the borrowers received £273,774.42 more than they would have if Barclays had been paid in full. The correct advance was made by the claimant, but that part of it went to the wrong recipient. Barclays, not having received all the moneys outstanding to them, would not provide a discharge of the existing mortgage. Accordingly the claimant could not be registered with a first legal mortgage; in due course the claimant was able to obtain a second charge. On default, repossession and sale, Barclays were paid off; the claimant did not recoup its loss in full. The question which arose was whether the claimant was entitled to reconstitution of the trust fund in the defendant’s client account, or the amount which Barclays had been able to claim from the sale. The trial Judge determined that the compensation should be the latter (plus interest, bringing the total to £323,501.38). The lender appealed. Its case was that there was never “completion of the remortgage transaction in accordance with its instructions” and that it was entitled to equitable compensation in an amount (after giving credit for recoveries) which would restore it to the position it was in immediately before the breach occurred. The issues in the Court of Appeal were:
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(i) Was there a breach of trust, and, if so, was it limited to the release of the £273,777.42 as found by the judge?
(ii) If the release of the entire £3.3m mortgage advance was in breach of trust, to what remedy was AIB entitled?
(iii) Ought the defendant to be relieved of liability under section 61?
146. These were the subject of a judgement by Patten L.J., with whom Sullivan and Arden L.JJ. agreed.
147. Patten L.J. cited substantial passages from the speech of Lord Browne-Wilkinson in Target. In paragraph 18 he cited the passage at p.436A-F. That includes the passage at 436C-D from which Rimer L.J. had, in the Markandan and Uddin case, noted reliance by the appellant on the first of these sentences:
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“But the basic equitable principle applicable to breach of trust is that the beneficiary is entitled to be compensated for any loss he would not have suffered but for the breach. I have no doubt that, until the underlying commercial transaction has been completed, the solicitor can be required to restore to client account moneys wrongly paid away. But to import into such trust an obligation to restore the trust fund once the transaction has been completed would be entirely artificial….”
That particular passage differentiates, by reference to the event of completion, between cases in which the solicitor can be required to restore to client account monies wrongly paid away and cases in which it is appropriate to consider what happened after the breach of trust or what would have happened if the breach had not occurred. In the former case the provider of funds will recoup its outlay; in the latter a different approach is taken to the identification of loss.
148. Patten L.J. concluded (at paragraph 40) that the relevant procedures required in that remortgage case were such that Redler were not authorised to release the monies until they had the relevant documents (including a certificate of discharge of the existing mortgage or a solicitor’s undertaking to produce such documents once the existing mortgage was redeemed) in their hands, which they did not. This led to the conclusion (at paragraph 42) that the Judge was wrong to treat the breach of trust as limited to the release of the £273,777.42. Thus on the first issue for the Court of Appeal, it was held that there was a breach of trust and that it extended to the whole of the £3.3m mortgage advance.
149. He then turned to causation and remedy. He said of the lender’s argument, that they were entitled to have the fund reconstituted:
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“This is the same argument as was advanced by the lender in Target v Redferns but was rejected by the House of Lords by reference to events subsequent to the breach of trust: in that case the grant of the charge over the intended security.”
150. Recording the Judge’s finding that if the solicitors had acted correctly, Barclays would have been paid in full and the transaction would have proceeded with the lender obtaining the requisite first legal charge, he said that the case was fundamentally different from the Markandan and Davisons cases
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“… where had the solicitors not released the monies in advance of completion there could have been no transaction and no loss would have been suffered at all.”
151. In paragraph 47 he said this, on which Mr Charlwood relies strongly:
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“In a case such as the present one, Target establishes that equitable principles of compensation, although not employing precisely the same rules of causation and remoteness as the common law, do have the capacity to recognise what loss the beneficiary has actually suffered from the breach of trust and to base the compensation recoverable on a proper causal connection between the breach and the eventual loss.”
152. He went on to consider as at the date of trial and with the benefit of hindsight what loss AIB had suffered, the answer being that it enjoyed less security for its loan than would have been the case had there been no breach of trust, and compensation was calculated by reference to the security shortfall.
153. The words “In a case such as the present one” are very important. It was in the immediately preceding paragraph that Patten L.J. had said that the case was fundamentally different from the position in Markandan and Davisons, where had the solicitors not released the monies in advance of completion there could have been no transaction and no loss would have been suffered at all. A point of differentiation was that:
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“This is not a case as in Markandan where the lender was a victim of a fraud and received nothing in return for its advance.”
154. In my judgment Mr Ikbal’s case is in the same category as the Markandan case: one in which the provider of the funds was a victim of a fraud and received nothing in return from his money (apart from an undertaking from a dishonest firm of solicitors which was not acting for the owner of the property; I have explained why I consider that irrelevant). It is not in the same category as AIB’s case, in which the bank did receive security.
155. My understanding of these authorities as relevant to this case is that:
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(1) it is necessary in every case to identify what the terms of the trust on which the defendant received funds were;
(2) it is necessary then to consider whether, on the facts, what happened was sufficient to discharge the trust;
(3) subject to any application by the solicitor for relief under s.61 of the Trustee Act 1925:
(4) if there was a breach of trust and the underlying commercial transaction has not completed, then the beneficiary can still require the solicitor to restore the trust fund; or
(5) if there was a breach of trust followed by completion of the underlying commercial transaction, the beneficiary will be entitled to equitable compensation which looks not to the fact of loss of the fund but to the loss which, “using hindsight and common sense, can be seen to have been caused by the breach” (Target at p.439B).
This is where I differ importantly from Mr Charlwood’s submissions. In these cases there is a loss of the fund, which is paid away. The breach of trust causes that loss. The question is whether in a particular case the claimant is entitled to be compensated for that loss or, if different, for the loss identified in the way just explained in the quotation from Target.
156. After the hearing in this case, Andrew Smith J. gave judgment in Santander UK plc v. R.A. Legal Solicitors [2013] EWHC 1380 (QB). I am grateful to counsel for citing this (and for all their work) and making written submissions on it.
157. In that case the lender, one of Santander’s subsidiaries (Abbey) agreed to lend (in effect) £150,000 in support of a residential property purchase and on condition that they obtained a first legal charge. It was another case of a “sale” by an impostor: the true owner of the property was not selling it at all. The fraudster(s) used another genuine firm of solicitors, Sovereign, which was infected by dishonesty and in due course was the subject of an intervention.
158. R.A. Legal Solicitors acted for the “purchaser” and Abbey, and acted honestly throughout.
159. Sovereign fraudulently procured that the honest solicitors acting for the purchaser, R.A. Legal Solicitors, released to Sovereign the price for the supposed purchase. The purchaser did not obtain title and Abbey did not obtain a first legal charge. Abbey sought reconstitution of the trust fund or damages. R.A. Legal solicitors denied breach of trust, alternatively relied on s.61 of the Trustee Act 1925. One of the questions was whether any breach of duty by the defendants had caused Abbey loss.
160. The particular steps in the chain of events were that:
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– on 21 July 2009 Sovereign sent R.A. Legal a signed TR1, purportedly signed by the vendor and witnessed: it was a forgery, but R.A. Legal from then had in their possession what they reasonably believed to be a valid TR1, held to the order of Sovereign;
– on 28 July 2009 R.A. Legal Solicitors instructed their bank to transfer the purchase monies to the bank account nominated by Sovereign as their client account;
– on 29 July 2009 exchange of contracts, and completion by Sovereign under the Postal Code, supposedly took place. What took place was not completion within the meaning of paragraph 10.3.4 of the CML Handbook.
161. The Judge described the first two issues thus:
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(i) Did R.A. Legal act in breach of trust when they transferred the funds [to] Sovereign’s account?
(ii) If so, did the breach of trust cause Abbey loss?
162. At paragraph 44 the Judge held that the loss suffered by Abbey had no connection with their actual criticisms of the way in which their solicitors had conducted the transaction.
163. The breach of trust claim was considered from paragraph 44, and the Judge distinguished between the events of 28 July 2009 (when money was transferred to Sovereign) and those of 29 July 2009 (when the bogus completion took place, with R.A. Legal already being in possession of the fraudulent TR1 which Sovereign had sent).
164. The Judge analysed the three Court of Appeal cases, and the detailed argument of counsel for the defendant as to why, despite them, it should be held that there was no breach of trust, but concluded that there was still a breach of trust:
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“Here, the trust required R.A. Legal to retain the fund until the trust was brought to an end by completion. … here, as in the Markandan and Davisons cases the solicitors deliberately transferred the funds out of their control. They released them to persons who purported to be acting for the vendor. They did so because they thought that there was to be completion and the trust would be ended, but they were wrong about that. The consequence of that is that they deliberately released the trust asset before the trust ended and so were in breach of trust.”
165. As for 28 July 2009, he doubted but did not decide whether a breach of trust occurred then. The only breach of trust he held had occurred was the “release” by R.A. Legal of the money to Sovereign in the belief that R.A. Legal held a valid TR1, when what they held was a forgery. There was not held to be a breach of trust at the point of the money passing to Sovereign’s client account; the only proven breach occurred when the money was “released” to them for a completion which, because of the absence of genuine documents, did not occur.
166. While I understand the argument that the movement of funds to the client account of the person purporting to be the solicitor for a seller, and appointing that person agent to effect completion, is, in a Postal Code case, all authorised and therefore not a breach of trust, it seems to me clear on the authorities that if, where the trust is to retain the fund until the trust is brought to an end by completion, there is a breach of trust if the funds leave the control of the solicitors without completion occurring (and so, on the occasion of the misappropriation by the rogues).
167. The second of the issues was whether the breach of trust caused Abbey loss.
168. The defendant did not argue that the identified breach of trust did not cause Abbey loss (paragraph 64).
169. The Judge considered 7 specific criticisms of the conduct of the defendant. To the extent that the defendant was at fault, he concluded that no loss was connected with the behaviour which constituted fault (paragraph 44; another possible criticism was also considered non-causative at paragraph 64).
170. From the fact that the defendant did not dispute that the breach of trust had caused loss, and the Judge’s conclusion that no criticised behaviour of the defendant had caused loss, the case was dealt with as one in which loss was caused by a breach of trust which occurred without the behaviour of the defendant as to that breach being a subject of valid criticism (certainly no breach of a duty of care).
171. In that connection, I note that the fourth and fifth complaints (set out in paragraph 37) concerned the facts that (1) the solicitors did not agree use of the Postal Code (paragraph 21) and (2) the defendant did not seek and Sovereign did not provide an undertaking about how Sovereign were to deal with moneys that were paid to Sovereign if completion did not take place. The fourth complaint was that the defendant:
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“… paid the funds to Sovereign relying only on the replies in the Requisition of Title … and the replies did not cover the position if there were no exchange of contracts or completion after funds had been released.”
172. Although factually correct, this complaint was specifically rejected by the Judge (paragraph 41). One of the points noted, before the Judge observed that the complaints were inconsequential because the fraud was effected by Sovereign failing to complete, was that it was clear that when the defendant sent funds to Sovereign without an express undertaking Sovereign held them to the defendant’s order unless and until the transaction was completed.
173. As mentioned, the defendant was relieved from liability under section 61.
174. Unlike the position in that case as to the identified breach of trust, Mr Charlwood does argue that loss was not in any relevant sense caused to Mr Ikbal by the breach of trust, because the outcome would have been the same even if the defendant had not acted in breach of trust. (I refer to the identified breach of trust because of the terms of paragraph 64 of the judgment in the R.A. Legal case. In the case of a possible argument about an unpleaded earlier alleged breach of trust which allegation would have been rejected, the Judge also said that it would also have failed because Abbey would not have withdrawn the mortgage offer:
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“This complaint had no relevant causative effect, and there resulted from it no compensatable loss; see the Target Holdings case.”)
175. I do not accept that, for the purposes of a claim based on breach of trust where the trust is to retain the funds until completion, and completion does not occur, Mr Charlwood’s argument is correct. What the claimant loses when the breach occurs is the amount of money which is not retained when it should be. While the authorities show that the history in cases of actual completion will result in an award of compensation reflecting the loss which the claimant would not have suffered but for the breach, they do not show that if completion does not occur compensation will be awarded on that basis. In cases in which completion does not occur, and was what was needed to discharge the trust, the solicitor must restore the amount which has been lost from the trust fund unless he is relieved of liability under section 61.
176. I have considered whether what Andrew Smith J. said about the possible argument about the unpleaded allegation requires me to hold otherwise. I do not consider that it does. Markandan considered the argument to the effect that the fraudsters would always have had their way, and I do not see that what Andrew Smith J. said about the significance of what Abbey would have done if asked in certain circumstances for instructions should lead to an approach to this case different from that in Markandan.
177. Subject to the section 61 application, I would order payment to the claimant of £315,000 and interest. I shall deal with that application after considering the common law claims in which the way in which the defendant did its work is criticised.
The common law claims
178. There were undisputed contractual (and parallel extra-contractual) duties of skill and care.
179. There is a fringe issue as to how sophisticated a buyer the defendant was entitled to suppose the claimant to be. Mr Parmar said that the claimant informed him that he was a big property type tycoon and was not a first time buyer, and that he informed Mr Parmar that he was very familiar with the process of buying and selling properties. I do not doubt that whatever was said led Mr Parmar to the correct belief that the claimant had bought several properties before and was familiar with the process as it would appear to a buyer. The claimant no doubt presented as a man of property experience, confidence and success, and his witness statement reference to his knowledge of building work and site management being vast does not suggest that he would have downplayed in his description of himself. I do not consider that on any view the defendant had material to justify a belief that the claimant was familiar with any part of the sale and purchase process that would not be visible to a buyer or a seller who had engaged in a sale or purchase which had not presented a significant legal problem.
180. Six categories of breach of the duty of care, and resulting damage, are alleged.
Breach of trust repeated as breach of duty of skill and care
181. The first was that that the breaches of trust were also breaches of the duty of skill and care; this was denied, consistently with the Defence position on breach of trust. I was minded to hold that there was a (single) breach of the duty of skill and care in this respect, in that it was not reasonably skilful or reasonably careful to fail to go through the applicable procedure to establish agreement to use the Postal Code, but paragraph 37 of the judgment of Andrew Smith J. suggests otherwise. I do not consider that this failure made a difference to the outcome of events and so if this had been a breach of duty it did not give rise to actual damage.
Failure to press for a TR1
182. The second category was the failure to require Fernando, on or after 26 July, to hand over a duly executed version of the TR1 (but it is accepted by the claimant that they would never have done so). The Defence appeared to suggest that there was no such duty. In any event breach was denied there on the basis that the Defendant did chase by telephone and by letter, and that Fernando said that it would be in the post, though at trial it was accepted that the defendant should have done more than it claimed to have done.
183. There was such a duty. In order for the conveyancing work to be finalised, with registration procured, the purchaser’s solicitor obviously needs to receive a duly executed TR1, so if no executed TR1 arrives he needs to take steps to get it. In cases where the Postal Code is used, while it is the responsibility of the vendor’s solicitor not to part with the purchase money without being in possession of a duly executed TR1, and to send it to the purchaser’s solicitor, the Code provides that the document is sent at the purchaser’s solicitor’s risk. The party who will know whether a document which has been sent has arrived is the addressee, not the sender. It is clearly for the purchaser’s solicitor to find out what has happened if the document does not arrive in the ordinary course of first class post or document exchange.
184. A reasonable system would involve diarisation of a date shortly after completion to check receipt (or some other reminder system), and rapid follow-up if by that date no executed TR1 had been received. I consider that the date and time on which follow-up should have started was no later than on receipt of the first post on 30 July (the Friday following the “completion” Monday), and that the defendant was in breach of duty from them. It was a very serious breach of duty.
185. It is speculative what would have happened if pressure had been applied. Two features appear to me to point in opposite directions. The first is that the behaviour at Fernando was thoroughly dishonest and someone was creating and sending false documents, false in the sense at least that they were representing instructions on behalf of a bona fide client. The second is that no TR1 was ever sent: if they were willing to tender a false TR1, why did they not do so? I think it unlikely that the omission was accidental.
186. The causation argument here was that there was a chance that Fernando would have provided a forged TR1 which would have enabled registration to occur; that if that had happened the Phillips children would have needed to apply for alteration of the register pursuant to Schedule 4 of the Land Registration Act 2002; and that the claimant would then have had the benefit of the indemnity provisions of Schedule 8 of that Act. The Defence denies that there was any more than a negligible chance of this. I shall deal with the issues arising below.
Failure to advise the claimant to take action
187. The third allegation was of failure to advise the claimant that, in the absence of a duly executed version of the TR1, he should do the following:
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a) give notice to complete pursuant to condition 6.8.1. of the Standard Conditions;
b) rescind the Agreement and require repayment of the deposit pursuant to condition 7.6.2 of the Standard Conditions;
c) protect his position pending rescission by applying for a freezing injunction against Fernando and Mr Phillips;
188. The Defence admitted that such advice was not given, but denied breach of duty. At trial it was accepted that the defendant should have advised the claimant to seek the return of the completion monies in default of an executed TR1 and that in default of either an option would be to seek a freezing injunction. The Defence position was that:
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1) the Defendant reported to the Claimant that nothing had been received from Fernando and was told not to take further action at that time;
2) that being so, it was not required to give the advice in question;
3) it would not have been appropriate to advise applying for a freezing injunction because there was no evidence that anyone intended to remove the money from the jurisdiction;
189. In the circumstance that it is accepted that the defendant should have advised taking some substantial action (i.e. in the first instance demanding monies back) it is probably unnecessary to consider further the question of what actually happened.
190. The suggested justification pleaded was that the defendant told the claimant that nothing had been received from Fernando but was told not to take further action at that time. This was reflected to an extent in paragraph 41 of Mr Parmar’s witness statement, which I quoted earlier:
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“I told the Claimant that we had not received the TR1 Form and suggested that we request the return of the funds transferred. The claimant told me to chase the TR1 Form as and when I can but not to request the return of funds or take legal action because he knew the seller and they would send it on. The claimant gave me the clear impression that he had met the seller, he had spoken to him, he knew the estate agent through previous transactions and that the estate agent knew the seller.”
(It was the second sentence that was withdrawn during cross-examination.) The version of the account in that sentence was itself at variance with the Defence in that it said that the claimant told Mr Parmar to chase the TR Form “as and when I can” (which Mr Parmar did not do).
Mr Ikbal did not accept that he was told this. I prefer Mr Ikbal’s evidence on the point.
191. In any event what Mr Parmar claims to have said is not in my judgment adequate. In my judgment a solicitor who was going to report that the TR1 had not been received should have been armed with information from the seller’s solicitor as to any explanation (unless he was reporting immediately before telephoning or writing by e-mail or fax to find out); and if he was reporting without being in possession of a satisfactory explanation he should have pointed out that the non-arrival of the TR1 was not adequately explained, was very serious, and should be the subject of action
192. There was a breach of duty in this omission.
193. I do not consider this breach causative of loss. I judge that if the claimant had realised that there was a serious problem he would have taken action of some kind, but I think it most unlikely that any action taken would have saved the day, because of my judgment that the money would have gone before the time that a report of concern should have been made to the claimant.
Warning not to do work at the property
194. The fourth allegation was of failure to advise the claimant that:
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a) in the absence of a duly executed version of the TR1 application could not be made to the Land Registry for his registration as proprietor of the Property;
b) accordingly he had no title to the Property and could not safely expend any money on it.
195. The claimant says that if he had been warned of this he would not have incurred expenditure.
196. Breach in the first respect is admitted.
197. Breach in the second respect was denied on the basis that such advice was not necessary. The reason pleaded is that by letters of 30 July and 15 September the defendant told the claimant that it still required funds to pay stamp duty and register the claimant as owner; it is said that as a business developer he knew or should have known that he should not expend money on the property until registered as its owner. However, at trial the defendant accepted that there would have come a time, which it suggested would have been on 9 August (2 weeks after “completion”), at which it should have advised the claimant that there appeared to be a problem with the transaction and that the claimant should not incur expenditure on the Property pending resolution of that problem. This is a realistic recognition of a duty (which was clear given that Mr Parmar knew that the claimant was going to do significant work on the property), and on the dates it makes no difference that I would say that this advice should have been given at some stage in the week before. What matters is that I have not reached the conclusion that it was a breach of duty that it was not given during the working week 26 to 30 July. Exactly when the advice should have been given depends on when the absence of the TR1 should have been queried and how successful Fernando might have been in fobbing off an enquiry with the only legitimate answer (that they had sent the document as procedure required and it must have gone missing). I shall deaf with causation and damage on this issue separately.
Failure to warn of suspicion of fraud
198. The fifth allegation related the time before “contract” and between “contract” and “completion”.
199. It was said that certain matters should have caused the defendant to observe unspecified “obvious risks” and that the defendant should have drawn attention to and advised on matters to which I am about to refer. When I asked what the “obvious risks” were said to be, and what advice should have been given, Mr Dodge explained that the case was that the solicitor ought to have advised that the matters mentioned were suspicious, that the manner in which the transaction was proceeding was suspicious, and that even in 2010 (before the autumn property fraud warning of that year) the existence of fraud in a conveyancing context was sufficiently well known that he should have advised that a transaction with these sort of suspicious features gave rise to a suspicion of fraud. It was not suggested that the defendant would have been justified in expressing an opinion that there was a fraud, but it was submitted that a solicitor should have said that he did not like the feel of the matter.
200. It was not disputed that a solicitor might owe a duty to warn a client that a transaction was suspect in this way, but what was disputed was that the facts of this case gave rise to such a duty.
201. The features said to be suspicious were that:
The draft contract gave the address of the vendor as that of the Property, rather than that appearing on the register of title;
The draft contract misspelt the address of the Property as being Brook Road;
Special condition 5 referred to an attached list of chattels, but no list was attached.
The property information, additional property information, and fittings and contents forms, were all undated;
On each of those forms the address of the Property was spelt Brook Road;
On each of those forms the information was said to have been given by Mr Phillips Philip (as opposed to Mr Philip Phillips);
Details of the service suppliers to the Property and of its liability to Council Tax were substantially incomplete.
The contract form received from Fernando was signed by them rather than by Mr Phillips;
Mr Phillips’ address was still given as that of the Property;
There was no list of chattels attached;
The address of the Property was misspelt Brook Road in the Requisitions.
202. These features show an inattention to detail, and the defendant should have attended to such detail and claims to have done so to some of them. What matters is not what he actually observed and did. What matters is that the features are said to have been suspicious, to have been suspicious to an extent such that no solicitor acting with reasonable professional skill and care should have failed to warn his client of a suspicion of vendor fraud, and that (admittedly) the defendant gave no such warning. It is not happy that one has to acknowledge the likelihood of carelessness in work of this kind, but the reality is that a solicitor in the defendant’s position, not conscious of a risk of vendor fraud, might well be inclined to ascribe to carelessness something whose real cause was there being a fraudster at work.
203. I do not consider that, even taking them all together, the defendant’s duty was to form the opinion that they gave rise to a suspicion of fraud, or a consequent duty to warn his client of such an opinion. This is the kind of allegation which is easily made with the hindsight advantage of knowing that the documents were provided by someone on the inside of a fraud. The allegation would be stronger if at the time solicitors generally should have been alert to the possibility of vendor fraud (whether when acting for someone claiming to be a vendor, or a purchaser), but this period of the case was before the 2010 property fraud warning, and one should not require an exaggerated sense of suspicion.
The mis-spelling points
204. Those who attend to detail closely do sometimes make observations which lead to the uncovering of fraud. But in modern life spelling mistakes abound, in both manuscript and, probably especially, typescript. As a point on it arises in this case the eye is caught by errors, such as “Summery” for “Summary” on a standard form document checklist sometimes used by Sterling (but not properly used in this case). Another example I have noticed is that in a letter of 16 December the claimant’s solicitors inadvertently referred to building works as including the fitting of a “loft conversation”. One of the errors to which attention was drawn was the word “loose” being used in place of “lose”, as in Fernando’s letter of 14 July in which it was said that if completion was delayed:
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” … your client will loose the deposit £10000…”
a spelling which was used again the following day.
205. The appearance of the word, which I would spell as “lose”, as “loose”, is evidently common (as reference to any internet search will show; coincidentally I saw “loose” where I would have expected “lose” three times in slides in a one-hour university lecture I have attended since the hearing): the spelling “loose” appears in paragraph 7 of Mr Parmar’s witness statement.
206. I have already multiplied the examples and could do so many times over. “Brook” for “Brooke” is an easy error, which should not have been made and should have been eliminated. It seems to me unrealistic to regard it as an error of a kind which should lead to suspicion of the counterparty or his solicitor, or as supporting suspicion which might arise from anything else. Neither considering documents of Fernando as a group, nor considering them as part of the overall impression of Fernando’s work, do I see them as leading an ordinarily competent solicitor to doubt the integrity of the solicitor or client on the other side. That applies to all the spelling errors which are littered over the documents.
The signature in Fernando’s name
207. I was not referred to material to show that a solicitor should, at that time, have regarded this as suspicious.
The address given for Mr Phillips
208. It does not appear to me to matter that the address given was not that shown in the registered title for the property as Mr Phillips’ address at the time of acquisition. There is no reason for any surprise that an address which was relevant almost 50 years earlier might not continue to be relevant.
209. There is no significance in the mere fact of the seller’s address being given as that of the Property. There would be a question if it were said that the address of an unoccupied property were actually being used for correspondence. It was not established that that was ever said.
The property / contents information forms
210. Neither when Mr Parmar was being cross-examined about these documents nor on looking at them again was I persuaded that these documents should have aroused suspicion of fraud. I agree that on a sale of an unoccupied derelict house, it is surprising that the presence of eight non-fitted domestic appliances should be indicated in section 12 of the contents form, with the indication that the cooker would stay and the other seven be removed; and the absence of council tax details is also surprising. When one considers items such as why there is no date, it is not apparent why one should move from there towards a suspicion of fraud, and the aggregation of matters does not seem to me to raise that suspicion. It is more likely that a buyer would raise concerns on going through this form (spotting these “white goods” said to be in a house which he considered contained only “clutter and mess”) than that a solicitor, other than one being particularly vigilant, would do so.
The wrong name – Mr Phillips Philip
211. Again, I do not see why this should appear an indicator of fraud as opposed to carelessness. It is not as if one can identify a reason why it might suit a fraudster to put the names in the wrong order.
The absence of a list of chattels
212. The absence of the list of chattels to which the contract terms refer is bad and should have been addressed. Probably the appropriate course of action was that there should be no chattels mentioned in the contract and therefore no list. I do not see that this points to the risk of there being a fraudster at work.
What if Mr Parmar had voiced a suspicion of fraud?
213. If I am wrong, there is the question whether, before or after contract, Mr Ikbal would have withdrawn from the transaction. A witness’ opinion at trial as to how he would have behaved in circumstances with which he was not actually confronted has to be evaluated not only for its truthfulness but for its realism.
214. The correspondence does disclose threats to withdraw if the vendor’s solicitors did not relieve the pressure of the demands being made as to time, and I accept that Mr Ikbal was not so personally committed to the proposed transaction that he would have gone ahead regardless (even if he thought, which cross-examination showed he may well have done, that he was getting a bargain). Apart from his own direct financial interest, he was also borrowing from members of his family and had their interests to consider.
215. I do not however think that he would in practice have been deterred by the defendant mentioning these features and a resulting suspicion of fraud. The view which I formed as I listened to his evidence about why the particular features would have mattered to him was that, perfectly honestly, he had come to believe that they would have mattered but that his belief was unrealistic.
216. Firstly, I think he would have regarded inaccuracies in forms, including spelling mistakes, as irrelevant. Secondly, I do not think he would have been disturbed about the absence of a chattels document, though he might have said that the point should be cleared up. This is because nothing in the evidence leads me to suppose that he had any interest in any chattels: he wanted to refurbish the property comprehensively and there was, as he said, “only clutter and mess”. Thirdly, I do not think he would have been worried about the address for Mr Phillips being given as that of the property, which was, after all, a property which he supposedly owned, even though he clearly did not live there. The address of the owner was an irrelevance. (What would have been suspicious would have been any statement that correspondence was being sent to an address of an unoccupied property.) Fourthly, any interest in the service suppliers and liability to Council Tax would have been likely to be in the information being obtained rather than in a suggestion that there might be an indication of fraud: he would have wanted to shop around for the best supplier but thought he needed to know the current supplier to obtain reconnection. Fifthly, he had been introduced to the property by Mr Ullah, who he said had introduced “numerous” properties to him before, and of whom he was not at that time mistrustful – the description of a very jovial and “typical pushy estate agent” did not suggest mistrust of what lay behind the pushiness. He had met on site a man introduced to him as the vendor’s nephew and had not felt anything was amiss. Finally, I think he would have backed his own judgment against that of Mr Parmar, whose services he was using for the first time, and his own judgment would have been that any fears expressed were unrealistic.
217. My view of that is all the stronger for the period after exchange of “contracts”: the idea of trying to achieve extrication from a supposed contract on the basis that one suspects fraud but is not justified in alleging it is unrealistic, and I cannot see Mr Ikbal attempting it if properly advised about the matter.
The Postal Code
218. The last allegation was that the defendant was in breach of duty in considering that it was entitled to complete in accordance with the provisions of the Postal Code.
219. This is correct in that the Postal Code should not have been used without express agreement to do so. This does not assist the claimant in a breach-of-duty-of-care claim, in which it is met by the point that if the defendant had acted correctly I am satisfied that use of the Postal Code would have been agreed.
220. Having now reviewed the criticisms made of the defendant in the case as a whole, I shall deal with the question against relief under the Trustee Act 1935 before dealing with the common law damages questions.
Relief under s.61 of the Trustee Act 1925
221. Section 61 reads as follows:
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If it appears to the court that a trustee, whether appointed by the court or otherwise, is or may be personally liable for any breach of trust, whether the transaction alleged to be a breach of trust occurred before or after the commencement of this Act, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the court in the matter in which he committed such breach, then the court may relieve him either wholly or partly from personal liability for the same.
222. The onus of proving honesty and reasonableness and that he ought fairly to be excused is cast upon the trustee (Underhill and Hayton, The Law Relating to Trusts and Trustees, 18th. Edition, article 93.1).
223. The standard of reasonableness is just that: the section does not predicate that the trustee must necessarily have complied with best practice in all respects. In Lloyds TSB Bank plc v Markandan & Uddin Rimer L.J. said that:
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“The careful, conscientious and thorough solicitor, who conducts the transaction by the book and acts honestly and reasonably in relation to it in all respects but still does not discover the fraud, may still be held to have been in bleach of trust for innocently parting with the loan money to a fraudster. He is, however, likely to be treated mercifully by the court on his s.61 application.”
In Nationwide Building Society v. Davisons the Court had to consider whether the Judge was right on reasonableness and, if not, how the discretion conferred by s.61 should be exercised by the Court of Appeal, and considered the case of a solicitor who had not displayed the high standard mentioned by Rimer L.J. in the earlier case. At paragraph 48 the Chancellor said that the standard was that of reasonableness, not perfection.
224. The same paragraph of Nationwide Building Society v. Davisons is important for another reason, which is the identification of what conduct of the defendant it is relevant to consider when considering whether the trustee has acted reasonably.
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“The relevant action must at least be connected with the loss for which relief is sought …”
Davisons were granted relief under s.61. A factor mentioned in paragraph 50, on the exercise of discretion, was that their lapse from best practice, if any, did not cause the loss to the claimant.
225. The topic was considered by Andrew Smith J. in the R.A. Legal case from paragraph 66. At paragraph 70 it was sufficient for his conclusion on reasonableness that he had concluded that none of the criticisms made of R.A. Legal were connected with Abbey’s loss. At paragraph 71 he accepted the submission that that criticisms of the defendant’s behaviour could be taken into account for the purposes of the exercise of the discretion, even though the particular criticisms were not causative of the loss.
226. Considering first honesty, Mr Charlwood’s opening note recorded correctly that “dishonesty is not alleged”. Although that is correct, it does not dispose of the issue: it is for the trustee affirmatively to prove honesty, and the fact that those acting for the beneficiary may not have enough material to justify alleging dishonesty in a Statement of Case does not relieve the trustee of that task.
227. I was, from first reading it, alive to the statement made on 2 November 2011 that Fernando were chased by telephone to provide the TR1 and that their response was that they were waiting for their client to sign the document and return it back to them (an answer which would be utterly astonishing to any buyer’s solicitor who used the Postal Code). This paragraph, which I continue to read with great surprise, although I have pointed out that it might be explained by a lack of understanding by unqualified staff of the significance of what was said, was not explored in cross-examination and was the subject of only limited enquiry by me, Mr Parmar replying to the effect that he recognised in the witness box that the answer said to have been given by Fernando would have made alarm bells to ring very loudly, a ringing which is not reflected in the documents.
228. Although I did not regard it as a foregone conclusion that honesty was proved, I do find it proved.
229. I approach reasonableness on the footing that it is not necessarily quite the same question under the statute as it is in relation to a duty of skill and care (see particularly paragraph 69 of the judgment of Andrew Smith J. in the R.A. Legal case).
230. As to reasonableness, I distinguish between two periods, the periods being up to and including 29 July 2010 and on and from 30 July.
231. In the first period Mr Dodge focusses on the failure to use the correct procedure for the use of the Postal Code, being the failure to see that an agreement was made, or the failure (if, contrary to my decision, it was made) to make or record it in writing. He says that anything less would be significantly to prejudice the position of the client, and an utter carelessness to protect his client’s interests.
232. I consider this over-stated, for exactly the reason given by Andrew Smith J. in paragraph 41 of the R.A. Legal case (at the point’s briefest, the solicitor who receives money which should not have been sent is not free of obligation about it). But I am reluctant to say this is reasonable behaviour by a solicitor for the purposes of section 61. As with telephonic exchange of contracts, standardised procedures have been introduced to enable the efficient use of time and resources but with safeguards designed to maintain proper protection of clients. The rash of cases about frauds exploiting the postal completion system suggests to me that it is important that solicitors should be scrupulous in the use of such procedures and not cut corners. The defendant’s approach was casual – not making the express agreement, and reading the answers to Requisitions to fit the assumption which was being used instead of express agreement. I do not consider that reasonable.
233. The second period is from the date at which I consider that the defendant ought to have realised that the TR1 had not been received and was overdue. On my conclusion as to the facts the failure of the defendant to address this was very unreasonable. I should perhaps say “very unreasonable indeed”, because even on its own case (which I have rejected) as to some sporadic telephone calls between July and the date of the intervention, and one letter written at least 15 weeks after the TR1 was overdue, I would still have regarded the defendant’s conduct as very unreasonable (quite apart from the failure to keep the client properly informed of, and advised about, the significance of the problem.)
234. It is then necessary to consider whether the unreasonable conduct is “connected with the loss for which relief is sought” (taking into account the entire section of the judgment in Nationwide v Davisons dealing with s.61, and in particular the reference in paragraph 50 to the unreasonable conduct not causing the loss there).
235. The unreasonable conduct in failing to agree the use of the Postal Code, and the loss, are part of the same history: it was the use of the Postal Code and the remittance of the funds by bank transfer that enabled the fraudsters to access the funds. But that would have happened in any event: if the defendant had expressly agreed the use of the Postal Code the outcome would have been the same. So although the events are part of the same history, there is not the connection between them which I understand to be envisaged by Nationwide v. Davisons.
236. The unreasonable conduct on and after 30 July was not connected with the loss, which in my judgment had already occurred.
237. It follows that, for the purposes of section 61, the defendant has proved that he acted reasonably. This is, and is only, because of the lack of causal connection between the defendant’s behaviour and the loss.
238. The third step is considering whether the trustee “ought fairly to be excused”.
239. Firstly, although Mr Charlwood submitted that “no discretionary basis for refusing relief has been suggested” it appears to me that, although (as in Nationwide v Davisons) there may be cases where once honesty and reasonableness are established there is nothing of significance to discuss on discretion, it is for the trustee to show why the discretion should be exercised in his favour.
240. Secondly, I have come to the conclusion that, from start to finish, the work of the defendant was conducted casually, even though I understand that the “connection” factor leads to the conclusion that the relevant work was conducted reasonably. I have made clear my particularly strong view of the ineptitude after “completion”. This is a case in the “pervasive and compelling” category (see the R.A. Legal case at paragraph 69) if one looks at the casualness overall.
241. Thirdly, there is not a point at which one can say both that the defendant should have behaved differently and that if it had done so the loss would not have been sustained.
242. Fourthly, I raised with counsel the question whether it might be appropriate to take into account, in considering whether the trustee ought fairly to be excused, that the Solicitors Act 1974 and rules made under it compel solicitors to maintain insurance very much larger than the sum at stake on the breach of trust claim, and that the main policy underlying this is to provide protection to solicitors’ clients (Swain v. The Law Society [1983] 1 A.C. 598 at p.608E per Lord Diplock and p.618B-C per Lord Brightman). It is well known that the premiums payable for this insurance are a substantial overhead for many solicitors’ practices, and that overhead needs to be covered in their overall charging arrangements. Neither counsel were aware of this point having been considered in the authorities, and there are several points that can be considered either way, including the existence of the Compensation Fund. I express no view on the point’s relevance.
243. Were it not for the causation point, I would refuse relief. The claimant was ill served by the defendant. But it appears to me that the situation is not materially different from that described in paragraph 50 of Nationwide v. Davisons:
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“The loss sustained by Nationwide was caused by the fraud of an unconnected third party. Even if Davisons had insisted on answers to requisitions on form TA13 and on separate written undertakings it is probable that the impostor would have complied, the matter would have proceeded to apparent completion by post and the impostor would have disappeared with the balance of the purchase money. The lapse from best practice, if any, did not cause the loss to Nationwide. Given that Mr Wilkes acted both honestly and reasonably I can see no ground on which Davisons should be denied relief from all liability.”
I therefore will give relief from liability for the £315,000.
Damage and damages from the breaches of duty at common law
244. Four heads of damage are said to have followed from the breaches of duty alleged. Of these I have already rejected the second and fourth. I do not consider that the claimant would have withdrawn from the transaction (Particulars of Claim paragraph 53) and I do not consider that there was a worthwhile chance of recovering anything from Fernando by swift action (paragraph 52).
245. The first head of damage is the one mentioned as a possibility in paragraph 51 of the Markandan decision. The argument is (1) there was a (worthwhile) chance that pressure on Fernando would have produced an executed version of the TR1 (albeit a forgery); (2) registration could and would then have been effected; (3) that would have put the Phillips children in the position of needing to apply for alteration of the Register pursuant to schedule 4 of the Land Registration Act 2002; (4) (the TR1 being a forgery) the claimant would have had the benefit of the indemnity provisions of schedule 8 of that Act.
246. Given the lack of information about anything at Fernando, it is difficult to judge the extent of any likelihood that pressure on Fernando would have produced an executed version of the TR1. Facts point in opposite directions. That there was dishonesty within the firm I am satisfied. A rogue had produced a fraudulent “contract” (not a forged one: the fraudulent element was the representation that Fernando had the owner’s authority to sign, when the person involved at Fernando knew the transaction to be bogus) – and so was obviously willing to produce fraudulent documents. A fraudulent TR1 could have been sent following “completion”, and it might have given them some breathing space before the fraud was discovered. And it was not sent. In a planned fraud the omission was surely deliberate. That could be connected with the fact that signing the name of Philip Phillips and the need of witnessing might have been a particular criminal bridge, forgery, which the fraudster would not cross or would not cross unless pursued so hard as to feel it necessary to take that extra risk. The fact that they had produced fraudulent documents before leads me to believe that there is some chance that a fraudulent TR1 would have been produced, but I do not consider that chance at all high. I think it is much more likely that pressure would simply have resulted in Fernando being the subject of intervention in early August rather than in September.
247. There is then the question whether such a TR1 would have duped the defendant and then HM Land Registry. In this matter at least the defendant could well have been duped. There is no real basis to make a judgment as to the degree of probability of the Land Registry being duped by a document of this kind. Neither do I have adequate material to help me judge the likelihood of registration being effected before 27 September, the day on which the Phillips children applied for registration, though their registration was effected in 3 days from then.
248. I agree that if the claimant had become the registered proprietor before the Phillips children applied for registration, they would have needed to apply under schedule 4 to the Land Registration Act 2002. I cannot see why they would not have succeeded in such an application. In that case indemnity would have been available to the claimant.
249. In my judgment a chance of some value was lost. It is very difficult to evaluate it, but, mainly because of my view of the unlikelihood of a forged TR1 being provided, it is at the bottom end of chances which can be regarded as having a real value. I consider that £35,000 (10% of the purchase price, although about 25% of the value suggested by the Phillips children) is the most realistic figure.
250. The third head of damage is that the claimant would not have incurred the following expenditure:
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1) £460 admitted to have been paid to the Defendant on 14 August 2010;
2) £797.56 paid to Hackney Borough Council on 9 September 2010 on a Building Regulations application;
3) £351.09 paid to Oval Insurance Broking on or before 17 September 2010 as an insurance premium;
4) £587.50 paid to GCA (UK) Ltd on 5 October 2010, being fees for design work;
5) £800 paid to Falcon Designs Ltd on 7 October 2010 being fees for design work for a planning application;
6a) £13,760 paid on various dates commencing on 2 November 2010 to Mr Wells;
6b) £16,000 said to be owing to Mr Wells;
(in each case these were said to be due under an agreement made on 30 July 2010, later the subject of a compromise);
7a) £19,270 paid on various dates commencing on 20 September 2010 to Skytek, an architecture / design and build practice;
7b) £30,000 said to be owing to Skytek;
(in each case these were also said to be due under an agreement made on 30 July 2010, apparently the subject of some later compromise);
8) The costs of the possession proceedings, £9,281.81.
251. It is of course not certain what would have happened if the defendant had done what should have been done and enquired of Fernando what had happened to the TR1. I have indicated my view that there is a distinctly unlikely possibility that a forged one would have been provided. It is more likely that it would not. My view is that it the most likely thing is that a point would have been reached in the week commencing 2 August 2010 at which the defendant should have alerted the claimant to the fact that the TR1 had not arrived and that its absence was serious in that he might not have what he had paid for, the ability and right to be registered as the property’s owner. Mr Charlwood’s suggestion was 9 August (a week for the document to arrive, followed by a week perhaps spent investigating with the carrier the assumed claim that the document had been sent), and nothing turns on that difference.
252. If that had happened the claimant would have had a dilemma, because if he owned the property he needed to get on with the works, but if he didn’t he would not wish to pay substantial sums for work to a property which he did not own. I consider that, regardless of solicitors’ etiquette, the claimant would have investigated much as he did when he was told of the possession proceedings (when on the spot investigation was earned out by his cousin Shameer: paragraph 42 of the claimant’s witness statement) and that Fernando would have received an unwanted visitor and have been unable to satisfy him (no doubt the claimant or Shameer would have been shown the door rather than being met by anyone other than the person on reception duties; the visitor would not have been satisfied by the visit. Either the defendant would have been prompted into taking strong action, including reporting to the SRA, or the claimant would have changed solicitors (as he did when he lost confidence in the defendant in the context of the possession claim)). Probably Fernando would have been the subject of intervention by the SRA. In that event, or in any event, the claimant would quickly have realised that there was a very serious likelihood that he had been defrauded and at that point he would have stopped work.
253. I do not think it possible from the documents to be sure about what expenditure would have been avoided; and it is significant that I do not find that the claimant should have been alerted to the danger until the week after 30 July. My views on the items are as follows:
254. The £460 would have been paid anyway, albeit reluctantly. It was paid because it was owed and matters would not have changed that. It is therefore not recoverable from the defendant in this way.
255. The payment to £797.56 to Hackney is receipted. I have no reason to suppose that the application was made materially before 9 September 2010. It would not have been made had the claimant been alerted to the absence of the TR1 and its seriousness. It is therefore recoverable.
256. I accept that £351.09 was paid to Oval Insurance Broking on or before 17 September 2010 as an insurance premium. This payment was arranged on or before 19 August. As 17 September was agreed as the date on which Oval could debit Mr Ikbal’s credit card, it is possible that the making of the arrangement for the payment date itself took place some time after the insurance instruction had been given – it looks as if Mr Ikbal was timing his arrangements for payment to fit in with his credit card payment cycle. I am not prepared to accept that an insurance premium would not have been incurred if, in the week commencing 2 August, the defendant had alerted the claimant to the TR1 problem and its significance. It may well have been incurred before then anyway, and the claimant would have been unlikely to leave his potential interest uninsured; only when it was clearly established that he had been defrauded would it have been logical to cease to insure his potential interest. This item is therefore not recoverable.
257. I accept that £587.50 was paid to GCA (UK) Ltd on 5 October 2010, being fees for design work. The fee was for three design items. The only clue as to the date of this liability being incurred is that one of the items was dated 3 August. It seems likely that work would have been commissioned in any event. This item of damages is therefore not recoverable.
258. £800 is said to have been paid to Falcon Designs Ltd on 7 October 2010 being fees for design work for a planning application for erection of an extension. Although not receipted, I accept that the payment was made. It was made pursuant to an application for payment made on 29 September. It looks likely that this work would not have been commissioned had the defendant alerted the claimant to the TR1 problem and its significance, and in my judgment is recoverable.
259. In both the Wells and Skytek cases the claim is put on the basis that written contracts were made with Wells Build and Skytek on 30 July. That is the date on which I have concluded that the defendant should have questioned the non-arrival of the TR1 but before I consider that they ought to have alerted the claimant, particularly, before they should have warned him that he was at risk if he spent money on the property. Accordingly I do not consider that the burdens of these contracts can be said to have been caused by a breach of duty by the defendant: they would have been acquired anyway. It follows that these items would not be recoverable.
260. It seems that the claimant was put in a position where he had no option but to go into breach of contract because he could not give his contractors access to the property. That would leave the position as being that work had to come to an end and each contractor would be entitled to claim (1) payment for the work done to date and (2) (subject to any mitigation) damages for breach of contract, i.e. the loss of profit to the end of the contract. The agreements to do the work were documented; with the exception of the Wells invoice mentioned below, termination agreements, or discussions about payment, were not.
261. Had I regarded the liabilities under these contracts as caused by the defendant’s breach of duty, it would have been difficult to decide what the evidence justifies that the liabilities were, whether paid or outstanding.
262. There is no doubt that considerable work was done at the property, but when the Phillips children obtained an injunction much remained to be done.
263. The Wells proposal of 30 July was for specified works at a materials and labour cost of £36,000.
264. A printed invoice from “Wells Build” was issued dated 15 January 2011, with a reference to a delevery (sic) date of 16 November 2010 (which coincides with the claimant alerting the defendant to the possession proceedings). The invoice claim was for immediate payment of £26,800 for “abortive works to the above property”. This is said to be a compromise figure for the total payable to Mr Wells, including both the work done and the work cancelled.
265. In the case of Skytek, there is a List of Works, signed on 30 July as a contract document by Mr Ikbal (but not by Skytek) for work to commence on 2 August, with a total price of £64,500. The claimant says he has paid them £19,200, and that at the date of his witness statement he owed them about £30,000, but there is no documentation supporting the payment or the alleged remaining debt of £30,000.
266. It is difficult to know what to make of the very limited material (including in the material the two relevant paragraphs of the claimant’s witness statement), especially given what came to light about the way in which documents were produced for the Court case, but I pay due regard to the fact that I am satisfied that it was logical that substantial work should have been commissioned and started, and that it was.
267. On balance, I would have concluded that £26,800 probably did realistically represent the past and post-termination liability to Wells.
268. For Skytek, who were said to have been more difficult over compromise, I would have accepted that £19,200 was paid, but would not have accepted that £30,000 was shown to be an existing liability reasonably incurred. It may or may not have been, but it is for the claimant to prove that by credible evidence, and he has not satisfied me about it.
269. Of the costs connected with the possession proceedings, firstly I do consider that they were caused by the defendant’s failure to report properly to the claimant. Unless Fernando had successfully fobbed the defendant off with a forged TR1, the defendant should have reported properly and it would quickly have become apparent that there was a fraud. The claimant would have abandoned the site and it would not have become necessary for the Phillips children to take possession proceedings. The payment of £4,581.81 in respect of their costs is admitted.
270. Memery Crystal billed the claimant £4,700, including counsel’s fees, and were paid from monies they had obtained on account. Their billing was based on 12.6 hours at £295 per hour, reducing their own charge from the resulting £3,717 to £3,250. There is a redaction in the narrative before me describing the work. The figures do not appear to me unreasonable: Memery Crystal were new to the matter and had to do a thorough job for a client who appeared to have been defrauded by dishonest solicitors and less than well served by Sterling. Given the reducing of the charge to £3,250 I do not consider it necessary to reduce the damages further to reflect the likelihood that the detail redacted reflects some attention to the role of the defendant.
271. It was submitted on behalf of the defendant that some costs would in all likelihood have been incurred in any event. This is difficult, because if the defendant had been taking proper care of the claimant his first reaction would have been to ask them to tell him what had happened and advise and look after him in the changed circumstances. It might be thought invidious for a solicitor to seek to charge in such circumstances, but in a market in which solicitors offer to undertake conveyancing for the very low fee in this case (£450) one can understand a solicitor feeling entitled to charge for work caused by the fraud of someone else. The claimant, however, could fairly have said that the defendant had not achieved the Agreed Next Steps set out at the time of the retainer, and would have been most reluctant to agree to pay for the consequences of that failure. I consider an allowance of £500 a reasonable reflection of these points.
272. It could be said that a consequence of awarding damages referable to the chance that a forged TR1 would be provided, I should correspondingly discount the other items because of the same chance. Although I regard that as logical, because I have regarded the chance as low and the figure awarded under that head is so impressionistic, I do not propose to do so. I consider my approach to be a practical and realistic one.
273. In these circumstances my calculation of the damages is:
Loss of the chance of indemnity £35,000.00
Payment to Borough of Hackney 797.56
Payment to Falcon 800.00
Payment of Phillips’ children’s costs order 4,581.81
Payment to Memery Crystal 4,700.00
Less allowance for possibly unavoidable costs -500.00
Total 45,379.37
Outcome
274. There will therefore be judgment for the claimant for £45,379.37. Subject to any further submissions, there should be simple interest on this amount. Rather than having interest calculated on different items from different dates I propose, subject to such submissions, that interest run from 1 October 2010 and that it run at base rate plus 4 percentage points. (Interest should reflect what someone like the claimant would probably have to pay to borrow during the relevant period. I do not propose to say more than that I am aware that, in the post-Lehman Brothers era, the Commercial Court abandoned the previous starting point of Base Rate plus 1 for commercial cases; that it was recognised in any event that individuals might have to pay much higher rates; and that awards of more than base rate + 4 have been made to claimants who appear to have been of much more financial substance than Mr Ikbal, who was stretched by this transaction.)
